World Bank warns “better-than-projected” global crop prices in 2023 could be offset by Russian disruptions

27 Oct 2022 --- The shrinking value of the currencies of most developing economies is driving up food and fuel prices in ways that could deepen the food crises that many already face, warns the World Bank’s latest Commodity Markets Outlook report. 

While it forecasts that next year may see some respite for soaring grain prices, it remains wary of the volatility Russian interruptions of Ukrainian trade may yet bring.

Agricultural prices are expected to decline 5% next year. Wheat prices in the third quarter of this year fell nearly 20% but still remain 24% higher than a year ago. 

Silver lining for food prices?
The forecasted decline in agricultural prices in 2023 reflects a “better-than-projected” global wheat crop, stable supplies in the rice market and the resumption of grain exports from Ukraine, outlines the World Bank.

The forecast of a decline in agricultural prices in 2023 is still subject to an array of risks, warns the World Bank.

But the forecast of a decline in agricultural prices is still subject to an array of risks, concedes John Baffes, senior economist in the World Bank’s Prospects Group. “First, export disruptions by Ukraine or Russia could again interrupt global grain supplies.”

Earlier this week, just two months after the Russia-Ukraine Black Sea food corridor was reopened for trade, the Ukrainian ministry of foreign affairs condemned Russia, blaming the country for delaying ship inspections and putting the trade route at an impasse.

Secondly, Baffes underscores that additional increases in energy prices could exert upward pressure on grain and edible oil prices. “Thirdly, adverse weather patterns can reduce yields; 2023 is likely to be the third La Niña year in a row, potentially reducing yields of key crops in South America and Southern Africa.”

Regional energy price impacts
Since the outbreak of the war in Ukraine, energy prices have been quite volatile but are now expected to decline according to the World Bank’s report.

After surging by about 60% in 2022, energy prices are projected to decline 11% in 2023. Despite this moderation, energy prices next year will still be 75% above their average over the past five years.

During the first three quarters of 2022, food-price inflation brought by soaring energy costs in South Asia averaged more than 20%.

Food price inflation in other regions, including Latin America, the Caribbean, the Middle East, North Africa, Sub-Saharan Africa, Eastern Europe and Central Asia, averaged between 12-15%. 

East Asia and the Pacific has been the only region with low food-price inflation, partly because of broadly stable prices of rice, the region’s key staple, highlights the World Bank.

“Although many commodity prices have retreated from their peaks, they are still high compared to their average level over the past five years,” remarks Pablo Saavedra, the World Bank’s VP for Equitable Growth, Finance and Institutions.

“A further spike in world food prices could prolong the challenges of food insecurity across developing countries. An array of policies is needed to foster supply, facilitate distribution and support real incomes.”

Taking a bite out of purchasing power
From a shopper’s perspective, consumers have been reacting to food inflation by making value choices like opting for value-packed products, discounts on offerings with marked-down prices and moving away from luxury brands to cheaper in-house food brands.

With the football World Cup kicking off in less than a month, bars and beer brewers have been preparing themselves for a spike in beer consumption. But the alcoholic drink, often synonymous with big sporting events, is being seen more of a luxury item these days as inflation pressures are brewing up a storm that threatens to further raise the cost of a pint.

“Policymakers in emerging markets and developing economies have limited room to manage the most pronounced global inflation cycle in decades,” flags Ayhan Kose, director of the World Bank’s Prospects Group and EFI chief economist, which produced the latest Outlook report.

“They need to carefully calibrate monetary and fiscal policies, clearly communicate their plans, and get ready for a period of even higher volatility in global financial and commodity markets.”

By Benjamin Ferrer