Tag Archives: commodity

‘Agflation’ to hit animal protein

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Skyrocketing agricultural commodity prices are causing the world to re-enter a period of ‘agflation’, with food prices forecast to reach record highs in 2013 and to continue to rise well into Q3 2013. Unlike the staple grain shortage 2008, this year’s scarcity will affect feed intensive crops with serious repercussions for the animal protein and dairy industries, according to Rabobank.

Luke Chandler global head of agri-commodity markets research at Rabobank comments, “The impact on the poorest consumers should be reduced this time around, as purchasers are able to switch consumption from animal protein back towards staple grains like rice and wheat.

MeatExportNZ covered this topic in a post last week ‘Global meat prices to surge’ but Chandler makes some additional points.

Firstly, that he does not anticipate the current period of agflation leading to the unrest witnessed in response to the shortage in 2008.

Rabobank estimates that the Food and Agricultural Organisation (FAO) Food Price Index will rise by 15 per cent by the end of June 2013. In order for demand rationing to take place, in turn encouraging a supply response, prices will need to stay high. As such Rabobank expects prices – particularly for grains and oilseeds – to remain at elevated levels for at least the next 12 months.

Chandler says that whilst the impact of higher food prices should be reduced by favourable macroeconomic fundamentals (low growth, lower oil prices, weak consumer confidence and a depreciated US dollar); interventionist government policies could exacerbate the issue.

“Stockpiling and export bans are a distinct possibility in 2012/13 as governments seek to protect domestic consumers from increasing food prices. Increased government intervention will likely encourage further increases in world commodity and food prices,” he warns.

Rabobank expects that localised efforts to increase stockpiles will prove counterproductive at the global level, with those countries least able to pay higher prices likely to see greater moves in domestic food price inflation. This is a vicious circle, with governments committing to domestic stockpiling and other interventionist measures earlier than usual – recognising the risk of being left out as exportable stocks decline further.

On top of that, Rabobank warns that global food stocks have not been replenished since 2008, leaving the market without any buffer to adverse growing conditions. Efforts by governments to rebuild stocks are likely to add to food prices and take supplies off the market at a time when they are most needed.

Food price surges “worrying”

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The food price surges are worrying governments and non-governmental organisations (NGOs) around the world.

Looking at it from a global perspective, and possibly with the spectre of food riots in the back of their minds, the G20, meeting a couple of weeks ago said the food price situation is “worrying“. However, they have held back from calling an emergency meeting now, preferring to wait until late-September or early-October when Washington has assembled some more crop forecast information. It was noted, however, that rice harvests are stable.

In the meantime, European banks are cooling on food commodity speculation, as it is said to be contributing to the commodity price surges, and are considering regulation. Others, including Sumiter Singh Broca a policy officer with the UN’s FAO, don’t agree entirely.

“While speculation may have added to the volatility of food prices, it is hard to argue that the increased volume of speculation would have made food prices more volatile in the absence of real shocks,” he argues in an article written for RepRisk Insight, a new e-zine.

“Farm subsidies and protection in some OECD countries have affected the volume and efficiency in agriculture and discouraged production in some countries, increasing their dependence on imports and hence their vulnerability to price shocks.”

He suggests increasing credible information on global food markets and enhancing transparency will reduce “panic-driven price surges” and enable better informed policy decision making.

Call to ‘stress-test’ the system

Recent research released last week by major international non-governmental organisation Oxfam ‘Extreme Weather: Extreme Prices’ ahead of UN talks in Bangkok aiming to tackle climate change is said to show that the full impact of climate change on future food prices is being underestimated. The research, carried out by Dirk Willenbockel of the Institute of Development Studies, looks at the impact of extreme weather scenarios on food prices by 2030.

Spikes, such as the current US drought, would be a massive blow to the world’s poorest who today spend up to 75 percent of their income on food, says Oxfam’s climate change policy adviser, Tim Gore. He calls for governments to ‘stress-test’ the global food system under climate change to identify where the world is most vulnerable.

KPMG’s Agribusiness Agenda points the way forward

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The KPMG Agribusiness Agenda 2012, released this week, contains interesting observations which have been gathered from conversations with nearly 100 business leaders, says Allan Barber, who recently reviewed the report.

But like most strategy documents I have ever read, the conclusions never quite seem to live up to the anticipation. However, this is a solid document with good ideas. Read more …