Global food prices will set records during 2013, according to a new report from Rabobank International, but the social impacts should be milder than in 2008 when shortages of staple foods caused riots in several developing countries. Rabobank issued the report, titled “Re-entering agflation: World food prices to hit record high,” last week.
According to the report, the overall FAO Food Price Index, which serves as a proxy for prices consumers around the world pay for food, will rise 12 percent from August 31 through the end of 2012, then slow to 2 percent growth for the first half of 2013. Prices will peak between the second and third quarters of next year.
Rising prices for agricultural commodities, largely due to severe drought in the United States and elsewhere are behind the expected spike in food prices. However, the analysts say, commodities used primarily for feed, such as corn and soybeans, account for most of the shortages this time around, in contrast with shortages of staple-food commodities such as wheat and rice in 2008.
Rabobank analysts project global stocks of core food staples such as rice and wheat will account for 61 percent of total grain supplies, compared with 53 percent in 2007-2008, resulting in wheat and rice prices about 30 percent lower than their 2008 peaks.
Meat and dairy prices make up 52 percent of the FAO Food Price Index and are the primary drivers of the forecast for higher food prices. The Rabobank report projects prices for slaughter cattle will increase by 6 percent and feeder cattle by 8 percent between now and June 30, 2013. The price of pork, demonstrated by lean hog futures, will rise 31 percent during the same period, according to the report.
Rising meat and dairy prices have global consequences, but the impact will be less than the rise in the price of staple grains in 2007 and 2008. This is because in much of the world, demand for animal proteins is more “elastic” than it is here. If the price gets too high, consumers simply switch to more plant-based foods. Meat demand elasticity tends to be highest in Africa, parts of Asia and South America, and moderate in most of our key customer nations for beef exports such as Japan and South Korea.
So U.S. meat exports are likely to slow from their recent growth rates, but domestic meat consumption will be less affected. The US has the lowest meat-price elasticity in the world, according to Rabobank analysts, meaning demand is less affected by price than elsewhere.