Food prices are in line with and even higher than recorded between 2007 and 2008, when the world faced a severe food crisis that triggered a series of protests in developing countries.
Here’s what BNP Paribas’s calculations show: in the first quarter of this year, food inflation in developing countries increased by 10% year on year, which exceeded inflation growth as a whole by 5.5%. Developing countries are the hardest hit by rising prices, even those known for food production, as in the case of Brazil.
The countries directly involved in the war in Ukraine are not only major grain exporters to developing countries, but are also involved in the supply of fertilizer to food-producing countries. “As a result, the war has endangered food security around the world, with food prices at their highest level in decades,” said BNP analysis by the bank’s emerging-country economist Luis Eduardo Peixoto and political analyst Nick Boraine. .
According to the French Bank, Turkey and Egypt, importers of grains and cereals produced in Eastern Europe, are the countries where prices rose the most in the first quarter of the year. The Turks faced inflation of almost 50% during this period, while the Egyptians faced a price increase of 20% compared to last year. Colombia is not far behind, although it is a food producer.
Big risks in Latin America
For BNP Paribas, Latin American countries are more vulnerable as they are more exposed to price changes and less likely to receive subsidies from governments. “Prices of local goods such as corn, wheat and oils have risen in recent months, which has affected domestic inflation,” bank analysts said.
Here in Brazil, food inflation, according to the latest preliminary data from the National Consumer Price Index (IPCA-15), is 14.02% over a 12-month period. During this period, only 13 out of 153 food products surveyed by the Brazilian Institute of Geography and Statistics (IBGS) fell in price.
Read more: Higher than expected IPCA-15 indicates continued inflation and will require bookmakers to be more careful, analysts say
Worse still, in addition to export restrictions between warring countries such as Russia, Ukraine and Belarus, other countries are restricting sales abroad in order to prioritize domestic supplies. Indonesia, which accounts for 40% of palm oil exports, has suspended shipments of the product to other countries. Just over a decade ago, India banned wheat exports due to a heatwave that drastically curtailed its production.
According to BNP Paribas, food inflation should remain a problem until the end of the year. “In fact, we are seeing prices rise in the second and third quarters in most major emerging markets, with more expensive inputs pushing commodity inflation and commodity prices. products higher agricultural prices are keeping food prices under pressure,” the bank said in an analysis.
Risks of entrenched and lingering inflation also increase the likelihood of political unrest, as happened between 2007 and 2008. High prices for basic consumer goods are a potential source of volatility as they reduce income availability and increase inequality. Families in developing countries spend 22% of their income on food, according to a French bank. The rise in prices that has occurred since 2021 could raise this percentage to more than 30%. Added to this scenario is an increase in poverty during the pandemic.
“Most developing countries have limited room to subsidize households in response to rising food prices, with many governments trying to reduce their budget deficits. This is typical for much of Latin America, in particular, countries that faced pressure on food prices even before the war, ”analysts at BNP Paribas explain.
Read more: The economic climate in Latin America fell by 11.7 points in the 2nd quarter, according to FGV
For the French bank, Latin America is also a place where there is a greater risk of social unrest, especially in Chile and Colombia, where protests have been registered recently and welfare programs are limited. In Brazil, the BNP sees risks ahead of the October elections linked to political polarization.
“The government has responded to the risk of paralysis for truck drivers by controlling rising fuel prices, as well as lowering import tariffs, in addition to increasing aid to low-income families,” analysts said.
Read more: Energy prices will remain high and form a “perfect storm” with the elections
Global Investment Manager Schroders offers a similar analysis of the impact of the war in Ukraine on the global food chain. The report, signed by Felix Odey, Alexander Monk and Mark Lacy, said the situation could worsen if the richest countries, such as those in the European Union, start subsidizing food prices to mitigate inflation.
“This could lead to a scenario where the gap in food availability between richer and poorer countries widens even further as prices rise above what people can afford in already food insecure countries,” they explain.
Analysts remind that the food chain has already been affected by climate change, which reduces crop yields due to prolonged droughts or heavy rainfall around the world.
“If the conflict is not controlled, it can have extremely negative consequences for the whole world. While the shortage in this case is a consequence of the war, food insecurity itself can become a cause of conflict,” analysts warn.
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