x Abu Dhabi, UAETuesday 23 January 2018

The outlook on rising food prices is grim, however you slice it

Blame a freezing December in Florida and growing affluence in Asia for the higher cost of orange juice – just one example of the vagaries responsible for our ever-growing grocery bills. James Langton examines his breakfast to trace why.

Blame a freezing December in Florida and growing affluence in Asia for the higher cost of orange juice - just one example of the vagaries responsible for our ever-growing grocery bills. James Langton examines his breakfast to trace why. Sammy Dallal / The National
Blame a freezing December in Florida and growing affluence in Asia for the higher cost of orange juice - just one example of the vagaries responsible for our ever-growing grocery bills. James Langton examines his breakfast to trace why. Sammy Dallal / The National

Blame a freezing December in Florida and growing affluence in Asia for the higher cost of orange juice - just one example of the vagaries responsible for our ever-growing grocery bills, writes James Langton

It's the moment of reckoning that will be familiar for thousands of families this weekend. As the final item crosses the cashier's barcode reader at their local supermarket or hypermarket, the total of the weekly shop flashes on a screen. Somehow it always seems to be a little bit more than the last time.

Those impressions are broadly correct. A cheaper cut of meat, a less expensive brand, dropping the odd luxury from the shopping list, can bring down the total for a week or two, but the sense that everything costs a little bit more - and sometimes quite a lot more - is more or less accurate. Food prices are rising.

According to the latest global food price monitor produced by the United Nation's Food and Agriculture Organisation (FAO), world food prices were 37 per cent higher this May than the same time a year ago.

The FAO Food Price Index tracks a range of basic commodities, including wheat, maize, rice, meat, milk and cooking fats. The average index of 232 was actually three points lower than in April and six points below February, its all-time high.

The headline figure conceals some major fluctuations. International prices for sugar and cereals actually fell in April, and in the case of sugar, quite significantly. Wheat's 1 per cent fall in the same period was small compensation for a 69 per cent increase year on year. On the other hand, meat, dairy and oil all continued their seemly inexorable upwards trajectory.

For ordinary families struggling to manage on a tight household budget in difficult economic times, the rising price of food is a major concern. The Government has already launched a campaign to set the price of 400 basic food items for six months, followed last week by a push to actually cut the cost of basics during the run up to Ramadan this summer.

For those living in less fortunate parts of the world, there is a foreboding of impending catastrophe. Oxfam, the international aid charity, warned this week that world food prices could double over the next 20 years, pushing more people into poverty and increasing the risk of further social unrest in some of the world's most troubled regions.

Already there is talk of a repeat of the food crisis of 2007-2008 that saw riots and unrest in more than 20 countries, including India, Yemen, the Philippines and Egypt, where the price of bread doubled in a matter of months. In a region as unstable as the Middle East in its current state, the impact could be huge.

But while a bigger weekly shopping bill or a pricier family meal at a neighbourhood restaurant is easy to see when the bill is presented, the reasons why a particular product is skyrocketing are more complicated.

And so a barely noticed account of flooding thousands of miles away can drive up the cost of your breakfast toast while drought in another distant land can add several dirhams to a dish of boiled rice.

Other increases are the result of seismic social changes in global markets. The emerging Chinese middle class discovers Starbucks and the joys of a mid-morning cappuccino, and suddenly coffee beans are a hot commodity. Throw in a poor crop in Brazil or Colombia and the cost of a cup of coffee in some cities has jumped by nearly 20 per cent.

Basking in the sunshine of the Arabian Gulf, how many people realised that Florida experienced its coldest December in 20 years? But the damage to the orange crop will become obvious when picking up a carton of juice.

Likewise, Londoners watching the wedding of Prince William and Kate Middleton basked in unseasonable spring sunshine. In fact, they should have been praying for rain. Britain and large parts of western Europe are facing a drought that could reduce the cereal harvest and add pressure to the cost everything from a loaf of bread to a packet of biscuits.

Other prices require more complex calculations. Recent downpours in Russia and the Ukraine means there is not likely to be a repeat of the disastrous wheat crop of 2010. But the torrential rain caused by Cyclone Yasi in February badly damaged Australia's tropical wheat crop, which feeds not just people, but animals. So the cost of Australian beef, exported in growing quantities to Japan -where the traditional fish diet is increasingly supplanted by red meat - also pushes up prices.

The complexity and scale of the world food markets makes it attractive to speculators. Prices can rise simply because the markets think a commodity might become scarce.

Higher prices can also drive consumer choice, at least when there is an alternative. Cyclone Yasi, for example, also sent the price of local bananas up to Dh58 a kilo in some Australian markets. So people switched to peaches instead.




A cup of coffee

Raw coffee beans are currently at their highest price in three decades, hitting more than Dh11 a pound for Arabica, the mostly widely consumed variety, on the wholesale market this year. Two figures from the International Coffee Organisation explain the problem. Global consumption was estimated at 134 million 60-kilo bags last year. Global output for 2010-11 is estimated at 133 million bags. Storms in Colombia, one of the biggest producers, have raised concerns about the 2011 harvest, although a revised forecast for Brazil, another major supplier, suggests a better crop than first thought. But the biggest driver of price is demand, soaring in new markets such as China, where the newly enriched middle class are switching from traditional tea drinks to western-style lattes. Coffee consumption is increasing everywhere - at an estimated 2.5 per cent a year - with coffee-producing nations keeping more for the domestic market. As a result, Starbucks has said it will have to increase the price of its packaged coffee by 17 per cent next month.


A slice of bread

Grain prices have soared by nearly 70 per cent in the past 12 months, putting upward pressure on the cost of everything from a slice of toast to a bowl of cereal. Drought ravaged crops in Russia and Ukraine last year, reducing the harvest by at least a third and prompting an export ban in what was once the breadbasket of the old Soviet Union. This year's rains in eastern Europe have raised hopes of a normal wheat harvest in 2011, but wet weather in parts of the United States and Canada has delayed planting. Winter wheat futures on the Chicago market are still 75 per cent higher than a year ago. Flooding caused by Cyclone Yasi caused severe damage to the Australian wheat crop but the problem in other parts of the world is drought. Affected areas include the American Midwest, where conditions are said to the worst since the Dust Bowl years of the 1930s, and most of western Europe. China officially described conditions in its northern wheat belt as "grim" earlier this year due to what is said to be the worst drought in 200 years. Despite all this, the latest report from the FAO says grain prices fell slightly in May. Overall wheat has fallen by 7 per cent since a record high, but the expectation is for further price rises later this year.


A glass of orange juice

Unseasonably cold weather in December and January caused severe damage to Florida's orange crop. At one point the state was only one degree warmer than Alaska. In China's Shandong province, a major producer in the Asian market, the problem was a severe drought compounded by cold. The result is a prediction that factory prices of orange juice could rise by as much as 80 per cent this year. In March, Tropicana, owned by PepsiCo, and the biggest buyer of Florida juice, announced it was raising prices by 8 per cent. The full impact of the winter freeze will not be known until later this month, although early predictions suggest the harvest could be down by nearly a fifth. The Grocer, a trade publication in the United Kingdom, recently predicted that juices could become a "luxury" item. But climate concerns are not the only thing driving prices higher. Demand for juice is rising around the world, especially in Asian markets and India, where growing prosperity is translating into a taste for more expensive drinks.


A bowl of sugar

The price of sugar illustrates the volatility of food markets. In the early months of this year it climbed to record heights, rising about 200 points on the FAO index. Since then it has plunged more than 100 points, including a 10 per cent drop in April. Prices rose rapidly for a combination of reasons: a drought in late 2009 that ravaged India's sugar cane crop; the use of sugar cane in Brazil to produce ethanol, and, above all, a growing sweet tooth around the world. The problem is made worse by many sugar-producing nations increasingly holding back part of their output for domestic consumption. India, the world's biggest sugar consumer, now hopes to produce a surplus in 2011; one reason why prices have dropped in recent weeks. But the next few weeks could be crucial as Brazil enters the season of winter frosts. A cold snap could see prices on the futures market resuming their upward trend.


A jug of milk and a pat of butter

The price of milk is frequently distorted by local subsidies, but according to the FAO Food Price Index, dairy prices strengthened in the first quarter of 2011 and are now approaching their all-time highs. Milk powder has risen by 9 per cent this year, while worldwide, butter (bottom right) and cheese have increased by an average of 3 per cent. In general the prices of dairy products have been climbing since 2009 and are on their way to approaching the record highs of late 2007. Then as now, demand is outstripping supply, with dairy products increasingly in demand in markets like the Far East, which consume them in ever growing quantities. Closer to home, watch out for more expensive imported butter from Europe. In Britain a 250g pack of unsalted butter is already nearly Dh2 more expensive than this time last year.


Assorted meats

Among the casualties of the Japanese tsunami in March were 10 per cent of the region's beef cattle. Some were drowned, others condemned for human consumption because of exposure to radiation. While this represents a small percentage of world beef production, the loss illustrates a growing problem in the world meat market: demand is growing but production is stagnant or, in some parts of the world, even contracting. The result is steady upward pressure on the price of all meat products; from lamb and chicken to the beef salami shown here. According to the FAO food outlook report for June, poultry output in the Far East, Egypt and Indonesia has been hit by new outbreaks of bird flu, while foot and mouth in Pakistan has seen beef production cut by 2 per cent. Parts of Africa, including Kenya, Somalia and Uganda, have suffered from drought. Overall, global beef production is expected to stall at 65 million tonnes in 2011, even as demand for what was once a luxury rises across the developing world. Fish prices are also higher on average than at any time in history. World stocks are falling and demand continues to rise.