The cost of raw materials that go into making breakfast staples have roared higher since the pandemic began — raising fears that a broad commodity boom could push up global food prices for consumers. 

Prices for bulk contracts of coffee, milk, sugar, wheat, oats and orange juice have jumped 28 per cent on average from 2019 levels, according to trading on US futures markets, where companies lock in supplies or hedge their exposure to commodities costs. For meat-eaters, adding pork to that list pushes the average price rise to 32 per cent.

The cost of raw ingredients accounts for only part of the overall price paid for products at the supermarket or in restaurants, but substantial cost rises were likely to be passed on to consumers, said analysts.

During the past few months, a slew of food companies including Switzerland’s Nestlé and Anglo-Dutch Unilever have announced price increases as the costs of raw materials rise. Higher food prices have become a political concern in some developing countries such as Ethiopia and Nigeria, and are creeping into consumer prices in developed economies as well.

“Food inflation is real in many places. It’s not going away soon,” said Abdolreza Abbassian, senior economist at the UN Food and Agriculture Organization. In April, the FAO’s real food price index — which tracks a wide range of products — hit its highest level in a decade.

Line chart of Rebased futures prices, average for list of breakfast commodities (2019 = 100) showing Breakfast could get pricey

Strong demand from China, stockpiling of grains by governments since the outbreak of Covid-19 and dry weather in key exporting countries have all contributed to rising prices of agricultural products.

Wheat prices are up by 16 per cent since the start of last year, while corn has surged by more than 60 per cent. Corn has been driven higher by Chinese buying, which is in turn is fuelling higher prices for alternative grains, including wheat.

The scramble to stock up evident in the early months of the pandemic last year has receded, yet “the demand for inventories is still strong”, said Carlos Mera, an analyst at Rabobank.

Butter has also gained in price. Global export prices have increased by more than a third over the past year, according the European Commission.

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 Baltic Dry index, a benchmark for the cost of bulk shipping, has hit its highest point in more than a decade, soaring on the back of the commodity demand surge and pandemic-induced bottlenecks.

Breakfast ingredients price rise illustration

Shipping delays have tightened the availability of coffee beans, raising costs for roasters and cafés. Arabica coffee futures prices are at their highest level in more than four years, with drought in Brazil further squeezing supplies from the world’s largest producer. 

Milk futures prices have been volatile in the past 18 months; at present, they are 12 per cent higher than the average recorded in 2019. China’s appetite for dairy has been very strong during the past year, John Lancaster at commodity brokers StoneX noted. New Zealand’s Fonterra, the world’s biggest dairy exporter, said earlier this week that milk prices could hit record levels during the next year.

Early pandemic stockpiling helped drive up futures prices for sugar 25 per cent from the start of 2020, while orange juice futures are up by a fifth over the same period.

Higher vegetable oil prices could well make fried breakfast foods pricier as well. Soya oil futures prices are up almost 90 per cent since the start of last year, while soyabeans have increased by almost 60 per cent.

Line chart of Global FAO Food Price Index and sub-indices, rebased  showing Food prices have risen well above pre-pandemic levels

In developing countries, where food is less processed and the portion of disposable income spent on staples tends to be higher, the rise in agricultural commodity prices will be felt much more. It will be most acute for those living in extreme poverty, a group that has swelled by an estimated 90m people during the pandemic, according to the World Bank, rising significantly for the first time in two decades.

“It’s more sensitive for developing countries as on top of access to food, you may have lost your job . . . [and] you don’t have the safety nets you have in the west,” Abbassian explained. Where there are fragile governments, “it will become a political issue”.

Futures prices for white corn that is used for pap, a corn porridge eaten in many parts of Africa, have risen 16 per cent on the South African exchange during the past 18 months. For rice — the main ingredient for congee, a dish eaten in many countries in Asia — futures prices have increased by more than a third.

“My biggest fear is not breakfast today but breakfast tomorrow,” Abbassian said.




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