Egypt is constantly under pressure to secure essential food commodities, such as wheat, edible oils and maize, to feed its people. The U.S. Development Authority estimates the country imports “more than 50% of its food and agriculture product needs.” Egypt also is the world’s largest wheat importer, meaning the cost of food is significantly affected by the pound’s foreign exchange rate, international prices and supply.
In 2022, the news was worrying. CAPMAS reported food inflation reached 30.9% in November, up from 8.4% a year earlier. That outpaces headline inflation rates, which went from 5.9% (2.5 percentage points less than food inflation) to 18.7% (12 percentage points less) during the same period.
International experts are divided over how the price of food will develop throughout 2023. The main problems are how long the geopolitical fallout from the war in Ukraine will continue, supply chain bottlenecks and how the weather affects yields in large food-growing nations.
Food in 2022
Fitch Ratings traced the beginning of the current global food-price inflation and shortages to “supply concerns … at the start of the Ukraine war” in February. Those worries revolved around grain, as Russia and Ukraine are the world’s top suppliers of agricultural commodities.
By November, the U.S. Department of Agriculture (USDA) forecasted that food prices in the United States for 2022 would increase between 8.5% and 9.5% compared to 2021. That compares to between 2% and 3% before Russia invaded Ukraine. “Eggs, fats and oils, and poultry are making the biggest gains,” according to the USDA.
Specialized news portal Food Ingredients First reported in October that food prices jumped 20% in South Asia in the first three quarters of 2022. In Latin America, the Caribbean, MENA, Sub-Saharan Africa, Eastern Europe and Central Asia, food costs were 12% to 15% higher for the same time frame.
Those price hikes are tapering off but are unlikely to return to 2021 levels. The World Bank’s Food Price Index reached an all-time high in April. During the third quarter of 2022, it dropped 12%. That is still 20% higher than in 2021.
Pablo Saavedra, World Bank vice president for equitable growth, finance and institutions, told Food Ingredients First that “although many commodities have retreated from their peaks, they are still high compared to their average level over the past five years.”
“In domestic currency terms … food prices remain elevated due to currency depreciations [throughout 2022],” John Baffes, a senior agriculture economist at the Development Economics Prospects Group, wrote in a World Bank blog in November.
Going down in 2023?
Baffes expects food prices to drop by 5% by the end of 2023 and stabilize in 2024. Fitch Ratings also sees food prices declining in 2023. For one, geopolitical risks won’t be as significant in 2023 as in 2022. In July, Ukraine shipped 20 million tonnes of grain into the global supply chain. The rating agency says that is a “significant share” of the 45 million tonnes the country exported last year.
In 2023, wheat should see a “marginal” increase in supply, Baffes said. Fitch Ratings cited “another bumper wheat harvest this year [in Australia],” coupled with declining geopolitical tensions between Russia and Ukraine. Edible oil supply should also increase by 4% in 2023 thanks to higher production from “palm, rapeseed, and soybean oil,” noted Baffes.
However, not all food commodities will increase in supply in 2023. “Maize and rice [yields are expected] to decline by 5% and 2%, respectively,” said Baffes. The drop is because of a decrease in maize yields in the U.S. and European Union and rice in China and India. That may cause the prices of those commodities to increase in 2023. However, they shouldn’t be enough to flip the forecasts.
Meanwhile, Fitch Ratings said price jumps from unprecedented inflation in wealthy nations would be countered by their central banks’ tight monetary policies. The rating agency said, “hawkish policy tightening … by the [Federal Reserve] has raised fears of recession and a marked global economic slowdown next year.” That ultimately means a drop in consumption of those food commodities.
Baffes also noted that slow GDP growth rates would suppress price hikes caused by a decrease in global food inventories in 2023. He said that stocks-to-use for food commodities should reach 27% in 2023, compared to an all-time high of 30.6% in 2017. The all-time low was 17.2% in 2006 and 2007.
However, he stressed in his World Bank blog, “Despite expected declines [in 2023], most food prices will remain high by historical norms.”
Going up in 2023?
The primary risk to food prices in 2023 is fertilizer costs, mainly due to a rise in natural gas prices, the main component in producing fertilizers. More expensive fossil fuels will also increase production and shipping costs.
Baffes noted that increases in food prices in emerging markets in 2023 could result from a further appreciation of the dollar against almost all other currencies. “Economy-wide factors, including ongoing supply chain issues and higher energy, transportation and labor costs, [will also] contribute to increases in prices across all food categories.”
Meanwhile, adverse weather conditions for top food commodity growers could hurt yields in 2023. Lastly, geopolitical developments, such as unfavorable trade policies, and the resumption of food exports via the Black Sea, will play a vital role in food prices in 2023.
Navigating uncertainty
The primary tool indicating how food prices will move will be the U.N.’s Food and Agriculture Organization food price index. Fitch explained: “If we assume that the U.N. index remains unchanged at its June level and project this into [2023], the resulting slowdown in U.N. food inflation would be consistent with a sharp fallback in annual food CPI in inflation.”
Egypt will be under pressure to balance fiscal and monetary policies. “Policymakers in emerging markets and developing economies have limited room to manage the most pronounced global inflation cycle in decades,” Ayhan Kose, director of the World Bank’s Prospects Group, told Food Ingredients First in October. “They need to carefully calibrate monetary and fiscal policies, clearly communicate their plans, and get ready for a period of even higher volatility in global … commodity markets.”
