FAO warns: food prices could rise again by the end of the year

The Food and Agriculture Organization of the United Nations (FAO) is sounding the alarm: the world could soon face a new surge in food prices. The warning was issued on Wednesday by FAO's Chief Economist, Máximo Torero, in an interview with Reuters, linking this risk to the conflicts in Iran and Ukraine, as well as the effects of the El Niño climate phenomenon.

According to Torero, the combination of geopolitical tensions, rising energy costs, and extreme weather events is creating a "perfect storm" that could trigger a new round of price increases worldwide.

When price rises will begin to be felt

"I expect commodity prices to start rising, with food prices climbing towards the end of this year. Next year, the increases will certainly be even more pronounced. It takes approximately six months for price rises in raw commodities to feed through to final food prices," said Máximo Torero.

For context, in 2022 rising food prices contributed significantly to global inflation. In the early months of this year, pressures eased somewhat, and in some countries prices stabilised following the spikes driven by high energy costs. However, the FAO believes this lull is temporary.

What is driving costs upwards

The FAO's Chief Economist warns that rising oil prices, reduced availability of fertilisers from the Gulf region, diesel shortages in certain markets, and extreme weather events are already being reflected in agricultural costs and will gradually reach consumers as well.

A particular pressure point is the Strait of Hormuz, a strategic route for the transport of oil and natural gas. "The Strait of Hormuz represents a major concern for agricultural markets and agricultural production systems, as it directly influences oil and natural gas prices," Torero explained.

Furthermore, attacks on energy infrastructure in Russia are affecting exports of diesel and natural gas — resources that are essential both for fertiliser production and for agriculture and food transport.

Farmers are already changing their crops

Although prices for some agricultural commodities such as wheat, maize, and rice have begun to rise in recent months, current levels still reflect the relatively good harvests of the previous season, rather than the difficulties anticipated for the year ahead.

The FAO is nonetheless observing tangible effects on farmers' decisions. "We are hearing the same signals from Europe, the United States, Brazil, and Asia. Lower yields are putting pressure on decisions about cultivated areas," said Torero.

In the first three months following the outbreak of the conflict in Iran, areas planted with wheat and maize began to decline. In the United States, some farmers have shifted towards soya cultivation, which requires less fertiliser.

Australia forecasts a 21% drop in production

Concerning signals are also emerging from Australia, one of the world's largest grain exporters. Authorities there are forecasting a 21% reduction in agricultural output, due to ever-rising fertiliser and fuel costs.

A potential decline in Australian exports could intensify pressures on international grain markets and contribute to higher food prices across numerous countries.

The effects are not limited to poorer nations

The FAO stresses that this new inflationary pressure is not confined to emerging economies. Developed nations are already feeling the impact of higher agricultural and energy costs, and a further rise in food prices could erode people's purchasing power on a global scale.

The warning comes at a time when international markets are still attempting to stabilise following the shocks caused by the COVID-19 pandemic and the war in Ukraine. The FAO believes that developments over the coming months will be decisive in shaping the trajectory of food prices in 2027.