Global food prices have risen to their highest level since June 2011. Price rises are being driven by poor growing conditions in some production regions. Steep increases in logistics and fertiliser costs worldwide are also leading to higher prices.
Trade implications
Favourable seasonal conditions have returned to much of Australia in 2020–21. This means Australian agricultural exporters are well placed to benefit from high international prices and tight global supply.
Several countries have, or are considering, reducing tariffs or imposing export restrictions. This move aims to protect local consumers from rising and volatile food prices. Reduced tariffs make imported products, including products from Australia, more competitive. Export restrictions could further increase global food prices by reducing food supplies available for trade.
Australian exporters should monitor announcements from trading partner governments to capitalise on emerging opportunities.
World food prices at record high levels
The Food and Agriculture Organization of the United Nations (FAO) Food Price Index tracks the international prices of basket food commodities. Between January 2020 and November 2021, the index rose from 102.5 to 134.4 (+31.1%).
Figure 1: Annual FAO Food Price Indices – Nominal (January 2000 to November 2021)
Since January 2020, the price of every commodity in the FAO Food Price Index has increased. Poor seasonal conditions in several major production regions were behind this trend. Steep increases in freight and fertiliser costs have compounded production-related price rises.
Figure 2: Monthly FAO Food Price Indices – Nominal (January 2020 to November 2021)
Commodity-level analysis
- Edible oils (+70% since Jan 2020): COVID-19 related labour shortages affected palm oil production in Malaysia. Poor seasonal conditions in Canada and India have reduced production of canola and soya bean.
- Cereals (+41% since Jan 2020): Droughts in major grain-growing regions including Russia, Ukraine and the US have led to higher cereal prices. High demand from key importing countries have also contributed to rising prices.
- Sugar (+38% since Jan 2020): Severe frosts and drought in Brazil have caused sugar prices to increase. Brazil is the world’s largest sugar producer and exporter.
- Dairy (+21% since Jan 2020): Limited global supply, increased input costs and robust demand, particularly in Asia, have increased dairy prices.
- Meat (+6% since Jan 2020): Tight global supply and strong demand has led to meat prices increasing.
Impacts of high food prices
The combination of high prices and favourable seasonal conditions is good news for Australian producers and exporters. This combination of factors is expected to push the value of Australian agricultural exports to over $61 billion in 2021–22 ().
For consumers, high food prices increase the proportion of the household budget spent on food. This can have negative impacts in emerging and developing countries, where food comprises a larger share of household spending.
Government policy responses around the world
Some governments are changing import and export policies in an attempt to reduce food prices. Policy changes may present opportunities for Australian exporters. They will make Australian products more competitive or further inflate global food prices.
Exporters should monitor policy announcements in the coming weeks as more governments address rising food prices.
- Argentina – Recently introduced export quotas and food price freezes.
- Brazil –Reduced tariffs by 10% on 87% of goods and services until 31 December 2022.
- India – for edible oils.
- Malaysia – Introduced a Maximum Price Control Scheme covering 12 essential foods.
- Russia – Introduced a wheat export tax and imposed a fertilizer export quota.
- Taiwan – Reduced tariffs on beef by 50% and wheat from 6.5% to 0%.
Resources
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