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Domestic food price inflation remains high around world: WB

BI Report || BusinessInsider

Published: 12:44, 18 July 2023  
Domestic food price inflation remains high around world: WB

Photo: Collected

The World Bank (WB) in recent data shows that the domestic food price inflation in almost all low-and middle-income countries remains high across the world between February 2023 and May 2023.

The world lender made the declaration in its latest Food Security Update report issued on Monday.

Inflation is higher than 5 percent in in 61.1 percent of low-income countries, 79.1 percent of lower-middle-income countries and 70 percent of upper-middle-income countries, with many experiencing double-digit inflation.

In addition, 78.9 percent of high-income countries are experiencing high food price inflation, it said.

The most-affected countries are in Africa, North America, Latin America, South Asia, Europe, and Central Asia.

In real terms, food price inflation exceeded overall inflation in 79.8% of the 163 countries where data is available.

The agricultural and cereal price indices closed 4 percent and 12 percent lower, respectively, while export price indices closed at the same level as two weeks ago.

The decline in the cereal price index was primarily driven by a sharp decline in maize prices which dropped by 21 percent compared to 2 weeks ago.

Wheat prices has also declined by 3 percent while rice prices increased by 1 percent over the same period.

On a year-on-year basis, maize and wheat prices are both about 19 percent lower while rice prices are 16 percent higher.

Maize prices are 4 percent lower, while wheat and rice prices are 1 percent and 3 percent higher, respectively, than in January 2021. (See “pink sheet” data for agricultural commodity and food commodity prices indices, updated monthly.)

The July 2023 edition of the Agricultural Market Information System (AMIS) Market Monitor highlights geopolitical tensions that threaten the Black Sea Grain Initiative, including the collapse of the Nova Kakhovka dam and damage to the ammonia pipeline between Russia and Ukraine.

The flooding and disruption of irrigation, along with the demand to reopen the pipeline, are increasing tensions and could lead to termination of the agreement, ultimately reducing Black Sea exports and undermining Ukraine's production incentives.

On June 6, 2023, the catastrophic collapse of the Kakhovka dam in southeastern Ukraine resulted in extensive flooding, posing a threat to drinking water supplies and raising concerns for agricultural areas that rely on the reservoir for irrigation.

The Kakhovka dam and reservoir are crucial for agriculture, providing water through major irrigation canals to more than 500,000 hectares of farmland.

The reservoir irrigates vast croplands that produce grains, oilseeds, vegetables, and fruits.

The dam's collapse has caused significant flooding downstream, affecting more than 40,000 hectares of land and numerous towns and villages.

Although the flooded agricultural area is relatively small, disconnection of the irrigation canals upstream has led to water scarcity for summer and winter crops, with implications for Ukraine's agricultural exports.

The Organisation for Economic Cooperation and Development–Food and Agriculture Organization (OECD-FAO) Agricultural Outlook 2023-2032, a 10-year assessment of agricultural commodity and fish markets at global, regional, and national levels, highlighted the threat to global food security from the surge in agricultural input prices in recent years.

One of the key concerns raised in the report is global food insecurity resulting from the surge in agricultural input prices in recent years.

The outlook suggests that rising fertilizer costs can lead to higher food prices. Using the Aglink-Cosimo modeling approach, the report estimates that, for every 1 percent increase in fertilizer prices, agricultural commodity prices will increase by 0.2 percent.

The impact is more significant for crops that depend directly on fertilizers than for livestock products, except for poultry and pork, which heavily rely on compound feed.

The outlook's medium-term projections are based on the assumption that current policies will remain in place and that consumer preferences and production technology will evolve as expected, although uncertainties related to environmental, social, geopolitical and economic developments could influence projections.

Following Russia’s invasion of Ukraine, trade-related policies imposed by countries have surged.

The global food crisis has been partially made worse by the growing number of food trade restrictions put in place by countries with a goal of increasing domestic supply and reducing prices.

As of June 5, 2023, twenty countries have implemented 27 food export bans, and 10 have implemented 14 export-limiting measures.

World Bank Action

As part of a comprehensive, global response to the food security crisis, in April 2022 the World Bank announced that it is making up to $30 billion available over a period of 15 months, including $12 billion in new projects.

The financing is to scale up short- and long-term responses along four themes to boost food and nutrition security, reduce risks, and strengthen food systems: (i) support producers and consumers, (ii) facilitate increased trade in food and trade inputs, (iii) support vulnerable households, and (iv) invest in sustainable food and nutrition security.

The Bank has achieved its target of making $30 billion commitment for food and nutrition security response.

Between April to December 2022, the Bank’s food and nutrition security commitments in new lending have passed the $12 billion mark – with almost half for Africa, which is one of the hardest hit regions by the food crisis. Some examples include:

  • 1. The $766 million West Africa Food Systems Resilience Program is working to increase preparedness against food insecurity and improve the resilience of food systems in West Africa. The program is increasing digital advisory services for agriculture and food crisis prevention and management, boosting adaption capacity of agriculture system actors, and investing in regional food market integration and trade to increase food security. An additional $345 million is currently under preparation for Senegal, Sierra Leone and Togo.
  • 2. A $150 million grant for the second phase of the Yemen Food Security Response and Resilience Project, which will help address food insecurity, strengthen resilience and protect livelihoods.
  • 3. $50 million grant of additional financing for Tajikistan to mitigate food and nutrition insecurity impacts on households and enhance the overall resilience of the agriculture sector.
  • 4. A $125 million project in Jordan aims to strengthen the development the agriculture sector by enhancing its climate resilience, increasing competitiveness and inclusion, and ensuring medium- to long-term food security.
  • 5. A $300 million project in Bolivia that will contribute to increasing food security, market access and the adoption of climate-smart agricultural practices.
  • 6. A $315 million loan to support Chad, Ghana and Sierra Leone to increase their preparedness against food insecurity and to improve the resilience of their food systems.
  • 7. A $500 million Emergency Food Security and Resilience Support Project to bolster Egypt's efforts to ensure that poor and vulnerable households have uninterrupted access to bread, help strengthen the country's resilience to food crises and support to reforms that will help improve nutritional outcomes.
  • 8. A $130 million loan for Tunisia, seeking to lessen the impact of the Ukraine war by financing vital soft wheat imports and providing emergency support to cover barley imports for dairy production and seeds for smallholder farmers for the upcoming planting season.
  • 9. The $2.3 billion Food Systems Resilience Program for Eastern and Southern Africa, helps countries in Eastern and Southern Africa increase the resilience of the region’s food systems and ability to tackle growing food insecurity.

The program will enhance inter-agency food crisis response also boost medium- and long-term efforts for resilient agricultural production, sustainable development of natural resources, expanded market access, and a greater focus on food systems resilience in policymaking.

In May, the World Bank Group and the G7 Presidency co-convened the Global Alliance for Food Security, which aims to catalyze an immediate and concerted response to the unfolding global hunger crisis.

The Alliance has developed the publicly accessible Global Food and Nutrition Security Dashboard, which provides timely information for global and local decision-makers to help improve coordination of the policy and financial response to the food crisis.

The heads of the FAO, IMF, World Bank Group, WFP, and WTO released a Third Joint Statement on February 8, 2023. The statement calls to prevent a worsening of the food and nutrition security crisis, further urgent actions are required to (i) rescue hunger hotspots, (ii) facilitate trade, improve the functioning of markets, and enhance the role of the private sector, and (iii) reform and repurpose harmful subsidies with careful targeting and efficiency.

Countries should balance short-term urgent interventions with longer-term resilience efforts as they respond to the crisis.