Since the Russian attack on Ukraine last year, when fertiliser and crop prices were at their highest, have dropped sharply. Still, experts in agriculture and food supply have warned that the world’s food supply is still in danger. Food prices were already high before Russia’s full-scale invasion of Ukraine at the beginning of last year. This was because of droughts and governments and businesses stockpiling food because of the coronavirus pandemic. Then, crop nutrition prices went up because Moscow was the biggest exporter of fertiliser in the world. The rise in the price of natural gas, which is a key ingredient in nitrogen fertilisers, also put pressure on agricultural markets.
Last year’s deal between Moscow and Kyiv to ship grain across the Black Sea helped keep prices down. So did Russia’s large supply of grain, and lower natural gas prices have helped calm the fertiliser market. Analysts warn, though, that the grain deal could fall apart and that volatile energy prices and climate change could also hurt crop production. John Baffes, a senior agricultural economist at the World Bank, said, “It’s like flying with only one engine.” “As long as that engine works, everything is fine, but if it stops, you’re in trouble… “If any of these things happen, prices will go up very, very quickly.”
A chart with two axes that shows how the prices of foods that are traded internationally have steadily gone down
The UN-backed grain deal, which is set to expire in March, is the most immediate threat. If it wasn’t extended, Ukrainian grain couldn’t leave the country, which would send prices back up. While many crops and food fertilisers are not affected by the sanctions that Ukraine’s allies have put on Russia, some are. Russian and European officials say that many banks, insurance companies, and logistics companies have been hesitant to work with their farmers’ goods. Geopolitical problems could make it hard to get supplies.
The weather is another danger. Even though La Nia was happening, temperatures in Europe and other parts of the world broke records last year. During La Nia, the surface of the Pacific Ocean cools. After three years in a row of La Nia conditions, many meteorologists have warned that the chances of El Nio, which warms the planet, happening this year are on the rise. The change from La Nia to El Nio “is likely to make 2023 warmer than 2022,” the UK Met Office said at the end of last year.
International fertiliser prices have gone down, as shown by a line chart of the CRU fertiliser price index (Jan. 2006 = 100). El Nio has caused droughts in south and southeast Asia, as well as Australia, and floods in Latin America, including Brazil and Argentina. “There have been three strong La Nias in a row, which is a first. But if El Nio happens in the next three months, it could mess up the weather all over the world, said Kona Haque, head of research at commodity trader EDF Man. “Tropical developing countries could be hit the hardest.” “If El Nio happens, Asia could become drier, and South America could get too much rain.”
Analysts are worried about global food supplies because there aren’t many grains in stock. The stock-to-use ratio, which is used by people in the grain market and agricultural economists to figure out how much of a commodity is available, is a good example for wheat. It says that projected stocks for the end of the crop year in June are expected to be 58 days, which is the lowest level since 2008, when international food prices went up because of droughts and higher energy costs.
“Prices will stay unstable because there aren’t enough supplies around the world,” said Joseph Glauber, a senior research fellow at the food security think tank IFPRI and former chief economist at the US Department of Agriculture. “If there’s a drought or a big weather event this spring, prices could go up sharply.”
In many developing countries, food supplies also depend on how the currency moves. Even though food prices on international markets have been decreasing, the dollar’s strength could keep prices high in local currencies. Since it takes about a year for prices in international trade to make their way to retail supply chains, this means that food prices for consumers are likely to stay high for a while.
“The food consumer price index shows that food prices are still going up by more than 10 percent in most parts of the world.” “I think the food CPI will go down as inflation in general goes down, but it will go down slowly,” said Glauber. There are some signs that things are getting better, though.
The UN Food and Agricultural Organization’s food price index for agricultural goods that are traded internationally has been going down for nine months in a row. In fact, prices for important nutrients and wheat are more than 40% lower than they were at their peak last year.
The wheat crops in Russia and corn and soybean harvests in Brazil have eased pressure on international grain and vegetable oil markets. At the same time, the recent drop in the price of natural gas, which is used as a feedstock, has led to more nitrogen being added to crop nutrients. Growers will feel less pressure if prices for things like fertiliser are cheaper on the international market. “We are very close to a turning point.” Michael Magdovitz, a grains and oilseeds analyst at Rabobank, said, “The input costs and margin pressure on the farmer seem to be getting a lot better.”
