Analysis and News

The Multi-Year Commodity Boom: Rice and Sugar

BY ARMCORE VPI's COO: Kezia Bridgewater

Rising food prices are a global phenomenon. In April, the FAO’s real food price index, a measure of the monthly change in international prices of a basket of food commodities, hit its highest level in a decade. The World Bank’s Agricultural Price Index increased more than 9 percent in the first quarter of 2021. Prices have risen 20 percent over the past year.

According to recent data, the cost of ingredients that go into making breakfast staples have roared higher since the pandemic began — raising fears that a broad commodity boom could push global food prices for consumers even further.

The lower-than-expected production in the US has contributed to the rising prices. Rice and wheat prices gained around 10 percent each in the first quarter. This price strength is a reflection of weather-related supply issues in key East Asian producers, including Indonesia, the Philippines, and Thailand (the world’s second-largest exporter after India).

Speculations about export restrictions following the COVID-19 pandemic last year may have also played a role in higher food prices. Many of these policy restrictions never came into effect.

Precautionary measures taken by governments to ensure food security has impacted the price levels. The Chinese government, for example, has been stockpiling grains since key exporting countries have been experiencing abnormally dry weather.

For countries that import a large share of their food, such as Egypt and Pakistan, a sharp rise in shipping costs has added to the price of ingredients. The rise in shipping costs raises a spectre of “cost-push inflation” for advanced economies. The Baltic Dry Index, a benchmark for the cost of bulk shipping, has hit its highest point in more than a decade. Freight prices for grains and oilseeds are at their highest levels since October 2019 according to the International Grains Council. In addition, the delays in shipping have also restricted the supply of these grains.

According to the U.S. Department of Agriculture’s April assessment, global production of the three main grains—wheat, maize, and rice—is set to grow by 1.7 percent this season (September 2020 to August 2021), resulting in a one percentage point decline in stocks-to-use ratio, a rough measure of supply relative to demand.

Sugar’s upward trend is informed by unfavourable weather in key producing countries. Brazil, which contributes closer to one-fifth of the world’s total sugar output has seen a dip in production as they experience drier weather conditions. Thailand which accounts for roughly 9 per cent of the world’s sugar output, may also experience the same due to dry weather.

The European Union is set to witness a fall in its sugar production for the third consecutive year due to reduced acreage and high incidence of viral disease. The British sugar beet sector, which produces more than half the sugar consumed in the UK, has also been hit by pricing pressures in part due to EU deregulation four years ago.

The world bank pink sheet data shows that average world sugar prices have been $0.35, $0.28 and $0.28 for the years 2017, 2018 and 2019 respectively with a monthly average of $0.30 recorded in October 2020, a relatively constant price with minor fluctuations. Global pandemic stockpiling helped drive up futures prices for sugar 25 percent from the start of 2020.

China has already imported 4.36 mt of sugar in January-November 2020, up 37 percent from the previous period and is further expected to add to its sweetener stockpiles. Russia is prepared to continue with its export curbs on key food products after recent price rises prompted a cap on the domestic cost of staple goods such as sugar and flour.

The International Sugar Organization (ISO) estimates the global sugar output at 171.1 mt against the consumption of 174.6 mt for 2021. Agricultural prices, which are projected to rise nearly 14 percent in 2021, are expected to stabilise in 2022.

The global economy is entering a multi-year commodities boom and higher food prices are not a standalone country-isolated incident.


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