World food prices jump 28% to their highest level in a decade

World food prices jumped 28 per cent in 2021 to their highest level in a decade and hopes for a return to more stable market conditions this year are slim, the UN’s food agency said on Thursday.

The Food and Agriculture organisation’s (FAO) food price index, which tracks the most globally traded food commodities, averaged 125.7 points in 2021, the highest since 131.9 in 2011.

The monthly index eased slightly in December but had climbed for the previous four months in a row, reflecting harvest setbacks and strong demand over the past year.

Higher food prices have contributed to a broader surge in inflation as economies recover from the coronavirus crisis and the FAO has warned that the higher costs are putting poorer populations at risk in countries reliant on imports.

In its latest update, the food agency was cautious about whether price pressures might abate this year.

“While normally high prices are expected to give way to increased production, the high cost of inputs, ongoing global pandemic and ever more uncertain climatic conditions leave little room for optimism about a return to more stable market conditions even in 2022,” FAO senior economist Abdolreza Abbassian said in a statement.

A surge in the price of fertilisers, linked in turn to spiralling energy prices, has ramped up the cost of so-called inputs used by farmers to produce crops, raising doubts over yield prospects for next year’s harvests.

In December, prices for all categories in the food price index bar dairy products fell, with vegetable oils and sugar falling significantly, the agency said in its monthly update.

It cited a lull in demand during the month, concerns about the impact of the Omicron coronavirus variant, and supplies from southern hemisphere wheat harvests for the declines.

However, all categories in the index showed sharp increases during 2021 as a whole and the FAO’s vegetable oil price index hit a record high.

Crop futures have seen volatile trading at the start of 2022, with oilseed markets stirred by drought in South America and floods in Malaysia.

Dairy prices maintained their recent strength in December, helped by lower milk production in Western Europe and Oceania, the FAO said.

In recent months, food prices have hit 10-year highs, causing concern worldwide. Supply-chain bottlenecks, labour shortages, bad weather and a surge in consumer demand are among the factors responsible for the spike. So, too, is a lesser-known phenomenon: China is hoarding key commodities.

By mid-2022, according to the US Department of Agriculture, China will hold 69 per cent of the world’s corn reserves, 60 per cent of its rice and 51 per cent of its wheat. By China’s own estimation, these reserves are at a “historically high level” and are contributing to higher global food prices. For China, such stockpiles are necessary to ensure it won’t be at the mercy of major food exporters such as the US. But other countries, especially in the developing world, might ask why less than 20 per cent of the world’s population is hoarding so much of its food.

China has operated granaries for thousands of years. In imperial times, they served as a source of tax revenue and a means of managing bad harvests, natural disasters, and war. Their importance grew as China’s population soared, yet the state’s ability to manage them faltered. During the late 19th and early 20th centuries, natural and political disasters brought hunger and starvation to millions. Outsiders referred to China as “the land of famine.” Political instability and revolution soon followed.

Mao Zedong and China’s Communist Party staked much of their credibility on “solving” hunger, but midcentury famines took the lives of tens of millions.

President Xi Jinping, never one to criticize his own country, once remarked that many members of his generation still recall hunger. Those memories have informed Xi’s policies since the start of his regime. In 2013, just weeks after taking office, Xi endorsed a nationwide campaign to discourage people from wasting food. In 2020, the “clean-plate campaign” was resurrected as he called on Chinese to “maintain a sense of crisis about food security.”

That crisis isn’t just about having enough to eat. It’s about having enough food produced domestically to minimize reliance on anyone else. Two weeks ago, Xi told a high-level Communist Party meeting that “the food of the Chinese people must be made by and remain in the hands of the Chinese people.”

That won’t be easy. China’s inventory of arable land has been in decline for decades, nibbled away by urban development and soil contamination, and its farms are far less productive than counterparts in other countries. Efforts to boost productivity with policy incentives and technology investments are promising but unlikely to pan out for years.