Nations start food stockpiling again

Food prices across the world are rallying sharply.

The global over-production of food that held commodity prices down for years has changed. The Bloomberg Agriculture Subindex, which hit a high of 63 in mid-2016 and dropped to a low of 34 in June 2020, is now at trading at 42. Besides Covid-19 related supply chain and labour issues, locust attack and climate change have hit food supplies across the globe in recent months.

In Africa, locusts wiped out crops in over millions of acres in July. In China, in the months of July-August, there was a flood in the Yangtze River basin, which accounts for 70 per cent of the country’s rice production. Besides, corn crop in five provinces were destroyed by the fall army worm attack. In the global market, supply in wheat, specifically, may be tighter in months to come.

Drop in output

This is due to a likely drop in output in Russia, the world’s largest wheat exporter, because of dry weather conditions, say experts. Further, the drought in western US is likely to have an impact too. In corn, the drop in output in China and lower supplies from the EU is expected to keep global supplies tight.

However, although the International grains Council has lowered its 2020-21 world grain production estimates by 1 million tonnes, it will still be a record of 2.226 billion tonnes in 2020-21. The reason for rally in food prices is also that countries are stockpiling food to be prepared for the second wave of Covid-19. India has done a record level of procurement in the last Kharif season. Nations that have seen drop in food output are building up stocks by importing food.

Building reserve

According to a Bloomberg report, countries including Jordan, Egypt, Taiwan and China have been tapping global grains market and building their reserves in wheat and other grains. The US is also concerned about food supplies, say global media reports. According to Feeding America, a nation-wide network of over 200 food banks in the US, the country may see a total of 6-8 billion meal shortfalls in the next 12 months.

It estimates that the total need for charitable food will reach 17 billion pounds next year, which is thrice last year’s distribution. The FAO Food price index averaged 97.9 points in September, 2020, up 2.1 per cent from August and up 5 per cent from its value a year ago. This was driven by higher prices of cereals and also vegetable oils. In palm oil, strong global demand and fear of drop in output in South-East Asia has been helping. Soy oil prices have rallied following poor crop prospects in the Black Sea region and firm demand from biodiesel industry in the US.

A Kotak Securities report indicated reasons for higher soybean prices as: “USDA had reduced US soybean stock in September at below 14.3 million tonnes (in quarterly stock report), which was down by 42 per cent from last year. The world’s largest soybean producer Brazil is already grappling with scanty inventories as steep weakness in Brazilian Real and robust demand from China has left the granaries with hand to mouth stock.”

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