Global food price inflation set to fall in 2024, says Rabobank

Food price inflation is set to fall sharply after large price rises for consumers in recent years, according to a major lender to agribusinesses, as production of agricultural commodities ramps up and demand is damped by weak economic growth.

Rabobank, a specialist food and agribusiness bank, said in its annual outlook for 2024 that overall food price inflation will be dragged down by falling prices of key food staples such as sugar, coffee, corn and soyabeans as growers increase production in response to high prices. Demand, meanwhile, is set to decline as consumers struggle with the effects of high interest rates and inflation.

The drop in the cost of some commodities will potentially boost profits for the dairy, bakery and meat sectors, the Netherlands-based bank said on Wednesday. 

“For the most part, we expect to see lower agricultural commodity prices, which alleviate the food inflation facing consumers,” Carlos Mera, head of agricultural commodities at Rabobank, told the Financial Times.

Food prices, which are heavily influenced by the prices of the underlying agricultural commodities, rose in 2020 in the wake of Covid-19 lockdowns and soared last year as markets reacted to Russia’s full-scale invasion of Ukraine — one of the world’s largest exporters of grain and oilseeds. 

The number of people facing hunger surged to more than 735mn by 2022, up by 20 per cent compared with 2019, according to the UN, with Africa the worst affected region. Across the globe the cost of essentials, such as milk and eggs, shot up, prompting governments to impose price controls. Food price inflation has since started to come down in most rich countries but remains sticky in many parts of the world. 

Agricultural commodity markets over the past three years have been “mayhem”, said Mera. With Covid-19, adverse weather and the war in Ukraine, “how much more disruptive can it get?” he added.

However, Rabobank expects that prices of wheat — a staple for billions, especially in developing countries — could be volatile as the world enters a fifth year of deficit in global supplies of the grain, it warned. 

The bank’s predictions mark something of a reversal of the price trends seen this year. Wheat prices fell on the back of a bumper Russian crop, while the cost of soft agricultural commodities, such as sugar and coffee, hit multiyear highs as the El Niño weather phenomenon brought extreme heat to Asian producers, hampering yields. 

Rabobank predicts that next year prices of key crops such as sugar will fall as weather conditions in Asia ease. Prices of sugar, which reached a 12-year high in September, could drop below the level predicted by the current forward curve, the bank said, as temperatures and rainfall in Thailand, the world’s third-largest producer, return to normal levels. 

Increased rainfall as a result of El Niño in some parts of South America is set to boost yields of coffee and soyabean crops. Rabobank forecasts that Brazil will see another bumper soyabean crop next year, while Argentina, the world’s largest exporter of soy byproducts such as soya oil, will recover after a failed harvest this year. 

Grain and oilseed exports from Argentina will hinge on what happens at the presidential run-off election this Sunday, said Mera. If the opposition party, which vows to liberalise trade, wins, then Argentine farmers may hold back stocks in anticipation of a more favourable exchange rate.

Of all the staple agricultural commodities, wheat faces the most uncertainty heading in 2024. Dry weather in wheat-growing regions of Argentina and Australia could hinder crop yields, while the war in Ukraine continues to slash grain exports from the country, according to Rabobank.

This will leave the world more dependent on Russia’s harvest — and at the whims of the Kremlin, which could opt to sell only to “friendly” countries or impose other export restrictions, said Mera. “We may see surprises [from Russia] in 2024.”