“Food prices reached a record high worldwide in 2022”

16 May 20235 min reading
Trade credit insurer Allianz Trade published its Sectors Report for 2022. The report emphasized that prices in the food sector, which is one of the sectors that are adversely impacted first-hand by the pandemic and the negative effects of the Russia-Ukraine War, especially the supply chain, and climate changes, reached a record high with an increase of 56 percent compared to the end of 2019, and drew attention to the negative effects of the energy crisis.
The world food price index compiled by the Food and Agriculture Organization of the United Nations (FAO), which tracks monthly changes in the prices of cereals, oilseeds, dairy products, meat and sugar, fell to 132.4 in December from a revised 135 in November. The food price index for November had previously been announced at 135.7. The world food price index averaged 143.7 in 2022, up 14.3% from 2021 and the highest level since 1990.

The report emphasizes that the trend of veganism, which emerged as societies around the world turned to plant-based nutrition in the wake of the energy crisis caused by climate change and the Russia-Ukraine war, is expected to be permanent, which could lead to a significant reduction in the consumption of animal meat and other animal products.

What should be taken into consideration in the Sector Outlook section of the report? In the section, the following points were highlighted:

Geopolitics of food security: The war in Ukraine has affected food inventories. Before the Russian invasion, the country supplied 4.5 million tons of agricultural products through its ports, including 12 percent of the world’s wheat, 50 percent of sunflower oil, and 15 percent of corn.

The world population is estimated at 8 billion 10 million people in 2023.  Ensuring access to food is therefore key to preventing a potential global food crisis in the forthcoming years. In particular, supply chain problems caused by grain and fertilizer shortages, climate change, and epidemics have caused global food prices to increase by 56% compared to the end of 2019.

Climate change: Changes in temperature, humidity, and rainfall patterns, as well as the strong impacts of changing weather patterns such as storms, floods, and droughts, are already affecting farming practices, production, and the nutritional quality of food crops.

Energy crisis: Due to the uncertainty of the war in Ukraine, we do not know exactly when Russia will supply Europe with natural gas again. And this is not positive for the region’s economic outlook. Although it is true that Europe is trying to become energy self-sufficient, this process will take some time. As a result, we expect fertilizer prices to remain high in the short term, which will affect the prices of agri-foods and keep them at high levels. However, we expect prices to peak in the third quarter of 2022 and 2023 is expected to be a pivot year.

Veganizm: Societies around the world are shifting towards a plant-based diet, and this global shift could be here to stay. This could lead to a significant reduction in the consumption of animal meat and other animal products.

Online ordering: Virtual market shopping applications and websites have become more attractive, especially for young people. We think this trend will gain momentum and challenge big retailers.

The domino effect of the invasion of Ukraine: As the world’s largest supplier of natural gas and the main producer of ammonia and NPK (nitrogen, phosphorus and potash), Russia is responsible for 33% of the world’s fertilizer production. Therefore, trade sanctions against Russia have tightened fertilizer supplies globally. In parallel, other major fertilizer producing countries, such as Germany, have had to reduce production due to high energy costs. All these developments have led to an unprecedented increase in fertilizer prices - especially those used by farmers. Because companies in the downstream sectors have enormous pricing power, they have been able to sell their products at higher prices and even increase their profits. Food commodity prices therefore rose sharply throughout 2022, especially in the cereals group, of which Russia and Ukraine are the main exporters.

In the fifth month of the war, a grain corridor was established as a result of the agreement reached between the parties in Istanbul with Turkey’s initiatives, and the grain waiting in Ukrainian ports began to be shipped to world markets.

Agricultural commodity price increases will be passed on to the next link along the entire production chain until they reach the end consumer, and ultimately the end consumer will have to pay much more for any given product. However - depending on market positioning, product mix and each company’s geographic footprint - the level of pricing power is not equal at each link in the chain, so margin increases will also vary by sub-sector.

Overall, companies in the lower segment may face a greater challenge going forward. On the other hand, packaged food companies continue to struggle with still high energy and logistics costs. Only large packaged food players with a strong market position in the food and beverage industry have been able to use their brand power and large distribution scale to pass on price increases to consumers, while seeing little downturn in demand. On the other hand, grocers are facing a shift in consumption patterns as people prefer cheaper products. This comes at a time when online channels are gaining popularity among end consumers, exacerbating the already high level of price competition among retailers.

Although discounts and promotions are the only way to retain customers in times of low purchasing power, this leads to lower margins and even losses for some players.

The annual increase in the agricultural input price index was 134.8% in November. Agriculture-PPI inflation also remained high at 151% in December.

According to World Bank data, the countries most affected by food inflation in 2022 are Zimbabwe (264%), Lebanon (139%), Argentina (99%), Iran (73%) and Turkey (67%). It is understood that the difference between the two data is due to the PPI-CPI difference (2022 PPI 128% - 2022 CPI 64.2%).

Articles in Article Category
10 June 20226 min reading

We are setting the course for a successful future

18 August 20156 min reading

Use of right coding systems in flow wrappers

“Every flow wrapping application is different and may have special requirements that better suit on...

16 May 20225 min reading

11 false facts about celiac