Prices fall on world markets, but relief not reaching homes
A restaurant on the outskirts of Nairobi skimps on the size of its chapatis – a flaky, chewy Kenyan flatbread – to save on cooking oil. Cash-strapped Pakistanis reluctantly go vegetarian, dropping beef and chicken from their diets because they can no longer afford meat. In Hungary, a cafe pulls burgers and fries off the menu, trying to dodge the high cost of oil and beef.
Around the world, food prices are persistently, painfully high. Puzzlingly, too. On global markets, the prices of grains, vegetable oil, dairy and other agricultural commodities have fallen steadily from record highs. But the relief hasn’t made it to the real world of shopkeepers, street vendors and families trying to make ends meet.
“We cannot afford to eat lunch and dinner on most days because we still have rent and school fees to pay,” said Linnah Meuni, a Kenyan mother of four.
She says a 4.4-pound packet of corn flour costs twice what she earns a day selling vegetables at a kiosk.
Food prices were already running high when
Russia invaded Ukraine in February last year, disrupting trade in grain and fertilizer and sending prices up even more. But on a global scale, that price shock ended long ago.
The United Nations says food prices have fallen for 12 straight months, helped by decent harvests in places like Brazil and Russia and a fragile wartime agreement to allow grain shipments out of the Black Sea.
The U.N. Food and Agriculture Organization’s food price index is lower than it was when Russian troops entered Ukraine.
Yet somehow exorbitant food prices that people have little choice but to pay are still climbing, contributing disproportionately to painfully high inflation from the United States and Europe to the struggling countries of the developing world.
Food markets are so interconnected that “wherever you are in the world, you feel the effect if global prices go up,” said Ian Mitchell, an economist and London-based co-director of the Europe program at the Center for Global Development.
Why is food price inflation so intractable, if not in world commodity markets, then where it counts – in bazaars and grocery stores and kitchen tables around the world?
Joseph Glauber, former chief economist at the U.S. Department of Agriculture, notes that the price of specific agricultural products – oranges, wheat, livestock – are just the beginning.
In the United States, where food prices were up 8.5% last month from a year earlier, he says that “75% of the costs are coming after it leaves the farm. It’s energy costs. It’s all the processing costs. All the transportation costs. All the labor costs.’’
And many of those costs are embedded in so-called core inflation, which excludes volatile food and energy prices and has proven stubbornly hard to wring out of the world economy. Food prices soared 19.5% in the European Union last month from a year earlier and 19.2% in the U.K., the biggest increase in nearly 46 years.
Food inflation, Glauber says, “will come down, but it’s going to come down slowly, largely because these other factors are still running pretty high.”
Others, including U.S. President Joe Biden, see another culprit: a wave of mergers that have, over the years, reduced competition in the food industry.
The White House last year complained that just four meatpacking companies control 85% of the U.S. beef market. Likewise,
just four firms control 70% of the pork market and 54% of the poultry market. Those companies, critics say, can and do use their market power to raise prices.
Glauber, now a senior research fellow at the International Food Policy Research Institute, isn’t convinced that consolidation in agribusiness is to blame for persistently high food prices.
Sure, he says, big agribusinesses can rake in profits when prices rise. But things usually even out over time, and their profits diminish in lean times.
“There’s a lot of market factors right now, fundamentals, that can explain why we have such inflation,” he says. “I couldn’t point my finger at the fact that we just have a handful of meat producers.”
Outside the United States, he says, a strong dollar is to blame for keeping prices high. In other recent food-price crunches, like in 2007-08, the dollar wasn’t especially strong.
“This time around, we’ve had a strong dollar and an appreciating dollar,” Glauber said. “Prices for corn and wheat are quoted in dollars per ton. You put that in local currency terms, and because of the strong dollar, that means they haven’t seen” the price drops that show up in commodity markets and the U.N. food price index.
In Kenya, drought added to food shortages and high prices arising from the impact of war in Ukraine, and costs have stayed stubbornly high ever since.
Corn flour, a staple in Kenyan households that is used to make corn meal known as ugali, has doubled in price over the last year. After the 2022 elections, President William Ruto ended subsidies meant to cushion consumers from higher prices. Nonetheless, he has promised to bring down corn flour prices.
Kenyan millers bought wheat when global prices were high last year; they also have been contending with high production costs arising from bigger fuel bills.
In response, small Kenyan restaurants like Mark Kioko’s have had to raise prices and sometimes cut back on portions.