Fear, markets, logistics may factor in food prices surge

Export costs spike as countries restrict what’s shipping out.

As the COVID-19 pandemic penetrates more deeply into global supply chains, prices for key staples are starting to soar in some parts of the world.

Rice and wheat — crops that account for about a third of the world’s calories — have been making rapid climbs in spot and futures markets. For countries that rely on imports, this is creating an added financial burden just as the pandemic shatters their economies and erodes their purchasing power. In Nigeria, for example, the cost of rice in retail markets soared by more than 30% in the last four days of March alone.

It’s unclear what the biggest drivers were for the retail prices, whether it was a trickle-down effect from grain futures, local logistical choke points or panic buying, or a combination.

What is clear is that, while the world isn’t about to run out of food anytime soon, anxiety over policymakers’ ability to deliver it to the right place at the right time and at the right price is mounting.

“Without the coronavirus, there would not be any problem whatsoever,” said Stefan Vogel, head of agricultural commodity research at Rabobank International. “People are getting worried about the supply chain.”

Most price measures in the broader economy at the moment are moving things in a different direction. There are concerns over deflation as the pandemic shutters businesses, sparks unemployment and unravels the oil market. In fact, a gauge of global food costs fell sharply last month, primarily a ripple effect from the energy plunge which cripples demand for crops like sugar that get turned into biofuels.

However, food prices don’t move uniformly around the world. Even within that broader drop, some critical staples were outliers. Rice posted a third straight monthly increase.

While global grain inventories have been plentiful for several years, the response to the virus is unleashing ripple effects making it harder for staples to get where they’re needed and helping drive the price gains. That’s happening at the same time that demand has spiked with people loading their pantries while they stay home as much as possible.

Adding to the pressure, countries including Russia, Kazakhstan and Vietnam are moving to secure domestic supply by restricting exports the world depends on.

The result? Export prices for rice from Thailand, the world’s second-biggest shipper, are at a six-year high. Wheat futures in Chicago, the global benchmark, shot up more than 8% in March, while Canadian durum, the type of grain used in pasta and couscous, is at the highest since August 2017.

There are also signs that price gains could be making their way to consumers for some foods in the U.S. Wholesale egg prices rose to a record as grocers boosted orders by as much as six times normal volumes. Beef also surged, though some of the gains have eased in the last week.

Wheat and rice are the world’s most consumed food crops. Staple crop prices have a long history of fueling political instability. During the spikes of 2011 and 2008, food riots occurred in more than 30 nations across Africa, Asia and the Middle East.

To be clear, it’s likely the supply disruptions could prove temporary. And that will probably mean wheat and rice will stabilize.

VEEJAY VILLAFRANCA / BLOOMBERG Workers carry sacks of rice inside a National Food Authority warehouse in Valenzuela, Philippines. The global staple food has posted increases in price for three straight months.