Global food prices are poised to continue climbing even after hitting a record high in February, placing the heaviest burden on vulnerable populations while adding headwinds to the global economic recovery.

Food Commodity prices rose 23.1% last year, the fastest pace in more than a decade, according to inflation-adjusted figures from the United Nations Food and Agriculture Organization. ‘Agriculture. February’s reading was the highest since 1961 for the price-tracking gauge for meat, dairy, grains, oils and sugar.

Now the war in ukraine and sanctions against Russia are disrupting shipments and possibly production for two of the world’s largest agricultural producers. The two countries account for nearly 30% of global wheat exports and 18% of maize, most of which is shipped through Black Sea ports that are now closed. Wheat futures traded in Chicago, the global benchmark, recently hit a record high.

The chart for the week shows how price shocks will impact globally, especially on poor households for whom food represents a larger share of expenditure. Food costs represent 17% of consumer spending in advanced economies, but 40% in sub-Saharan Africa. Although this region is heavily dependent on wheat imports, grain constitutes only a minor part of the total caloric requirement.

Dietary differences are also important. In Europe, where bread is deeply embedded in many aspects of its culture, wheat accounts for about a quarter of the diet. In Southeast Asia, wheat accounts for only 7 percent compared to 42 percent for rice, whose price increases have so far been relatively contained. However, country-level averages mask substantial differences within nations, as poor households tend to eat more cereals but less meat, vegetables and fruits compared to middle-income households.

Finally, the disruptions may be even greater for countries with close trade ties to Russia and Ukraine, especially in Eastern Europe, the Caucasus and Central Asia. High wheat prices will further weigh on economies in the Middle East and North Africa, such as Egypt, which are particularly dependent on Russian exports.

Going forward, reduced fertilizer supplies and rising oil prices will increase the costs of harvesting, transporting and processing food. Policymakers must prevent these pressures from fueling food insecurity by avoiding protectionism and increasing social assistance for the poorest.

The world could also call on the two largest economies if the situation worsens. In the United States, where about 40% of corn production is for ethanol, policymakers could reevaluate this use. And China, which holds more than half of the world’s wheat and corn reserves, could consider releasing supplies at lower prices.

*About the authors:

• Christian Bogmans is an Economist in the IMF’s Research Department (Commodities Unit). His main research interests are in the areas of environmental and energy economics and international trade, with an emphasis on the relationship between trade, natural resources and the environment.
• Jeff Kearns is Senior Communications Officer in the IMF’s Policy Communications Division and editor of the IMF Blog. He joined the Fund from Bloomberg News, where he was a business editor in Beijing and Washington, a Federal Reserve reporter in Washington, and a US stock reporter in New York.
• Andrea Pescatori is Chief of the Commodities Unit in the IMF’s Research Department and Deputy Editor of the Journal of Money, Credit and Banking. He has written extensively on a variety of macroeconomic topics, including monetary and fiscal policy, and published in peer-reviewed journals.
• Ervin Prifti is a Senior Economist in the Research Department of the International Monetary Fund and works on issues of food security and agricultural commodity markets.

Source: This article was published by IMF Blog