The price of breakfast: high costs reinforce fears of global food inflation

The cost of raw materials entering the manufacture of breakfast dishes has skyrocketed since the pandemic began – raising fears that a wide boom in raw materials could drive up world food prices for consumers.

Prices for contracts for large quantities of coffee, milk, sugar, grain, oats and orange juice have jumped 28 percent on average from 2019 levels, according to trading in futures markets in the United States, where companies block supplies or cover their exposure to raw material costs. For meat eaters, adding pork to that list pushes the average price increase to 32 percent.

The cost of raw materials accounts for only a portion of the overall price paid for products in the supermarket or restaurants, but the substantial increase in cost was likely to be passed on to consumers, analysts said.

Over the past few months, a slew of food companies, including Nestlé in Switzerland and Anglo-Dutch Unilever, have announced price increases as raw material costs increase. Higher food prices have become a political concern in some developing countries such as Ethiopia and Nigeria, and are also spreading to consumer prices in developed economies.

“Food inflation is real in many places. It is not going away any time soon, “said Abdolreza Abbassian, a senior economist at the UN Food and Agriculture Organization. In April, the real FAO food price index – which tracks a wide range of products – has reached its highest level in a decade.

Strong demand from China, grain storage by governments since the outbreak of Covid-19 and dry weather in major exporting countries have all contributed to rising agricultural commodity prices.

Grain prices have risen 16 percent since the beginning of last year, while grain has grown more than 60 percent. Grain has been driven higher by Chinese purchases, which in turn is fueling higher prices for alternative cereals, including wheat.

The struggle to keep up with evidence in the early months of the pandemic last year has eased, yet “demand for inventories is still strong,” said Carlos Mera, an analyst at Rabobank.

Butter has also gained in price. Global export prices they increased by more than a third last year, according to the European Commission.

For countries that import a large portion of their food – such as Egypt and Pakistan – a sharp rise in shipping costs has added to the price of ingredients. The Dry Baltic Index, a benchmark for the cost of wholesale transport, reached its highest point in more than a decade, which grows on the back of growing demand for goods and pandemic-induced bottlenecks.

Ingredients for breakfast increase the price illustration

Shipping delays have increased the availability of coffee beans, increasing costs for roasters and coffee makers. Future prices of Arabica coffee are at their highest level in more than four years, with drought in Brazil also squeezing supplies from the world’s largest producer.

Future milk prices have been volatile over the past 18 months; currently, they are 12 percent higher than the average recorded in 2019. China’s appetite for dairy products has been very strong over the past year, John Lancaster told StoneX brokers. New Zealand’s largest dairy exporter in the world, he said earlier this week that milk prices could reach record levels over the next year.

The first pandemic outbreak helped boost future prices for sugar 25 percent by early 2020, while orange juice futures grew by a fifth over the same period.

Higher vegetable oil prices could make fried foods for breakfast even more expensive. Future prices for soybean oil have risen nearly 90 percent since the beginning of last year, while soybeans have risen nearly 60 percent.

Graph of the FAO Global Food Price Index and sub-indices, declines showing that food prices have risen sharply above pre-pandemic levels

In developing countries, where food is less processed and the share of disposable income spent on flakes tends to be higher, the rise in prices of agricultural raw materials will be felt much more. It will be most acute for those living in extreme misery, a group that has been inflated by an esteem 90m and people during the pandemic, according to the World Bank, increased significantly for the first time in two decades.

“It’s more sensitive for developing countries because in addition to access to food, you may have lost your job…[and]you don’t have the safety nets you have in the west, ”Abbassian explains. Where there are fragile governments,“ it will become a political problem ”.

Future prices for white wheat used for pap, a grain porridge eaten in many parts of Africa, have risen 16 per cent on the South African exchange over the past 18 months. For rice – the main ingredient for congee, a dish eaten in many countries in Asia – future prices have risen by more than a third.

“My biggest fear is not breakfast today but breakfast tomorrow,” Abbassian said.

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