KARACHI: The State Bank of Pakistan (SBP) is expecting that global food inflation may be on the higher side for some time due to hoarding and unfavorable production prospects in the wake of Covid pandemic.
The SBP in its recent report discussed the rising global food prices in detail and said that in view of the Covid-driven supply disruptions and grain production outlook, food insecurity persists. “Stockpiling behavior, increasing protectionism, limited food exports and unfavorable production prospects are likely to keep the global food inflation at elevated level for some time,” the SBP predicted.
According to SBP, inflation is rising in advanced and emerging economies since the start of the COVID-19 pandemic but limited to food group. Particularly, headline inflation dropped mainly on account of low energy prices, whereas core inflation also declined or stabilized due to weaker demand.
The report pointed out that a number of supply-chain factors are considered to be the major contributors to rising food inflation during pandemic particularly lockdown and restricted mobility measures affected the supply and demand of certain products.
In addition, globally, supply disruptions also noted in agriculture products due to labor shortages resulting from a decline in the number of migrant workers. Palm oil harvesting and processing operations have been increasingly affected by labor force reduction, especially in Malaysia.
Hoarding practices in international trade also contributed the higher food inflation as countries fail to coordinate their emergency policies.
According to the SBP, major grain prices were almost stable during March and April 2020 or in fact, they rather declined on account of sufficient production and stocks available with the major grain producing countries.
However, prices started posting rise since May 2020 and surged nearly 8 percent by end-September 2020. Recent gain in agricultural commodity prices are mainly driven by a greater demand for grain-based food by major consumers such as China and supply shortfalls in some agri products on account of unfavorable weather.
From the global demand perspective, China has stepped up its purchases for edible oil and grains significantly to secure domestic food requirement. Similarly, India is also reported to have increased its imports for edible oil. As per industrial experts, second round of stockpiling has started by the consumers in fear of another Covid wave.
Moreover, towards the end of September 2020, Malaysia’s top producing state considered imposing a new set of temporary restrictions on palm oil producers, in an effort to contain fresh outbreaks of Covid. Limiting plantations' workforce numbers and mills' operating hours is expected to affect the production significantly during peak harvest season.
Similarly, Russia’s agriculture ministry is planning to limit the amount of grain wheat, barley and maize that can be exported from February 2021, over constrained production prospects and high world demand. While the supply-chain disruptions were already shaping up food inflation expectations, weather related reduced production prospects further escalated the food inflation.
Palm oil also registered gain amid the problems that suppliers are having in securing enough labor to precede with the palm harvest, as mentioned earlier.
The report said that wheat prices, in particular, posted significant rise in prices reflecting strong global demand, unfavorable growing conditions in Argentina and Australia and continued dry weather adversely affecting winter wheat conditions in some parts of Europe, northern America and the Black Sea region.
International soybean quotations also maintained their upward momentum due to unfavorable weather conditions in key growing regions of the US. In light of these facts SBP is expecting that food insecurity would persist.
Copyright Business Recorder, 2021