The report by Dutch bank Rabobank said that the world was entering another period of ‘agflation’, with very tight supplies of agricultural commodities pushing prices upwards. It claimed that meat and dairy prices were driving the price increase and warned that food prices might reach an all-time high next year as the effects of the “skyrocketing” agricultural commodity prices are felt.
It said: “The long production cycles of the animal protein and dairy industries will have lingering effects on global food prices as herds (especially cattle) take longer to rebuild – maintaining upward pressure on food prices. The full effect of this commodity price rally and the subsequent lower meat and milk output will be a multi-year rebuilding of herds, which will sustain high price levels of these products.”
Severe droughts across the key exporting countries – the USA, South America and Russia – have been the primary trigger for food price inflation, lowering expectations on global harvests, limiting supply and resulting in “critically low” stock levels. Intensive feeding crops such as corn and soybean have been particularly affected, with prices now at an all-time high. Meat processors and animal protein industries in particular will continue to see a squeeze on margins, with prices rising for consumers.
The report said that increased slaughter rates are likely to increase meat supply in the short term and depress prices, but that declining global herds would drive down production and further tighten supply in the medium to long term.
It said: “We expect lower margins will shift the supply of animal protein to a lower base, a bullish longer-term scenario that could result in diminished herds as economic growth and demand increases.”
Slow down in demand
Demand for meat in emerging markets will be more affected by rising prices, and demand from Asia, the Middle East and North Africa is likely to slow down, the report said, but the longer-term consequences of price rises could be most visible in Europe, while Chinese consumers were likely to have increasing costs muted by the government. Although consumption in the US is unlikely to drop, exports of US beef are predicted to fall off as a result of high prices that US exporters demand.
The report said that although grain and oilseed stocks are expected to rally, commodity price are expected to remain elevated for another year.
Luke Chandler, global head of agri commodity markets research at Rabobank, said: “The impact on the poorest consumers should be reduced this time around, as purchasers are able to switch consumption from animal protein back towards staple grains like rice and wheat. These commodities are currently 30% cheaper than their 2008 peaks.
“Nonetheless, price rises are likely to stall the long-term trend towards higher protein diets in Asia, the Middle East and North Africa. In developed economies – especially the US and Europe – where meat and corn price elasticity is low, the knock-on effect of high grain prices will be felt for some time to come.”
The report warned that fears for food security could provoke government intervention, like that seen in 2008. It warned of the counter-productivity of commodity stockpiling as this could potentially increase price volatility.