Global food prices reached a high in July, averaging 131.1 points on the FAO Food Price Index, driven by surging cereal, sugar, and vegetable oil costs tied to ongoing wars and adverse weather conditions.
Global Food Commodity Pressures and the FAO July Index
International food commodity costs climbed to their highest reading since January 2023 last month. The Food and Agriculture Organization index rose from 130.3 points in June to 131.1 points in July. The FAO’s chief economist told Reuters this week that the world faces another bout of food inflation as wars in Iran and Ukraine along with El Nino create a perfect storm of higher costs and lower crop yields.
Cereal prices led the monthly upward trend with a 3.4% month-on-month rise in the FAO’s cereal price index, fueled in turn by a 5.8% jump in wheat prices, the agency said. Wheat markets were affected by concerns over Black Sea export disruptions and heat damage to crops in key producing regions, it said.
Vegetable oil prices also climbed, with the FAO’s vegetable oil index rising 2% to its highest level since June 2022. Higher crude oil prices amid escalation in the Iran war and strong demand for biodiesel supported palm and soy oil prices, though rapeseed and sunflower oil declined. Meanwhile, sugar prices rose 5.6% on weather concerns in Europe and Asia and expectations of stronger ethanol demand in Brazil.
Divergent Meat Markets and Sector Contrasts
While most major commodity groups saw increases, meat prices fell 2.8% from a record high in June, FAO said. Poultry, pig and bovine meat prices declined, though sheep meat prices reached a record high amid tight export supplies in Oceania. Dairy prices fell 0.7%.
The FAO’s overall food price index reading for July was slightly above a previous three-year high in April. The latest reading was nonetheless 18.2% below its March 2022 peak that followed Russia’s full-scale invasion of Ukraine.
US Food Costs and Restaurant Industry Impacts
Domestic producer and consumer data reveals a mixed picture for food costs inside the United States, providing some potential relief for a restaurant industry beset by profit challenges. According to federal data released by the U.S. Bureau of Labor Statistics (BLS) this week, the producer price for food declined 0.6% in June. Food costs are up 1.8% over the past 12 months.
Restaurant menu price inflation slowed to 0.2% in June, from 0.3% in May, according to the BLS. Food away from home prices are up 3.4% over the past year. For limited-service restaurants, prices are up 3.1%. At full-service restaurants they are up 3.7%. Prices at grocers and other food retailers are up 2.7% over the past year. Overall consumer prices, however, declined 0.4% in June, though prices are up 3.5% over the past year. The June numbers indicate an unexpected rate of decline in the key inflation metric.
Certain commodities showed notable domestic relief or contrasting trends. Beef costs showed signs of easing, with the producer price of beef declining 1.5% last month, though they are up 12.7% over the past year and remain at historically high rates. High beef costs have hurt fast-food burger and casual dining steak chains thanks to a combination of low supplies and continued demand. Chicken prices, on the other hand, are down 14.8% over the past year and declined 2.2% last month. Egg prices, meanwhile, are down 77% over the past year. But prices for vegetables are up 59%. Easing food costs, coupled with a more favorable labor market, could provide some relief for restaurants dealing with weak sales, a heavy value environment, and profit declines. More than four in ten restaurants were not profitable last year, while franchisees file for bankruptcy and operators close locations.
Keep reading
