Inflationary pressures are being seen across the global food commodity market at the start of 2023 due to trade disruptions coupled with high energy input costs and production shortfalls. In the global food commodity market, several key factors have been identified by Euromonitor International that will continue to shape food commodity markets worldwide.
Domen Zavrl is an entrepreneur who counts commodities markets among his areas of expertise. You can find out more about what is meant by a commodities market in the PDF attachment to this post.
Food Price Volatility
Since 2020, global agrifood commodity prices have been rising. Initially this was due to supply disruptions related to the pandemic, resulting in increased consumer demand. Throughout 2022, this was aggravated by a variety of factors, including the war in Ukraine and unfavourable weather conditions.
Input costs such as energy, labour, feed, fertilisers and logistics are also spiralling, while a raft of export restrictions – such as temporary bans on palm oil in Indonesia, wheat in India and poultry in Malaysia – are also contributing to the surge in inflation. While this inflation is expected to soften in early 2023, there are potential volatilities that could prevent that from happening.
Increasing shifts in food demand are occurring around the world, delivering opportunities for more diversity in the global food commodity market. In developed countries, factors such as slow population growth and high market saturation mean only modest growth is expected in 2023. However, the opposite is the case in developing countries, where high population growth combined with rising consumer affluence and rapid urbanisation will drive higher demand and grow the markets.
Changes in dietary requirements across both developed and developing markets will also influence the prices of food commodities. In developing countries, we are seeing more demand for diversity, including for animal products. In the West, more people are pursuing plant-based diets and seeking out ‘free-from’ foods, such as those that eliminate gluten, sugars and fats.
Enhanced Production Capacity
Driven by the increase in demand for both more food and a more diverse range of foods, production capacity in developing countries is also on the rise. In the Asian-Pacific and Latin American regions in particular, which already contribute to a large share of global agrifood output, there is still much potential for expansion. Companies and governments are increasingly investing in the intensification of food production, including introducing advanced farming techniques and developing vertical integration.
Climate Change Risk
Climate change could pose a huge risk to many food commodities in the near to medium-term future. Extreme weather volatility including droughts and flooding pose long-term threats to farming and agriculture.
To face emerging climate challenges, many farmers are introducing measures such as crop diversification, smart farming and regenerative agriculture. However, developing nations will find it harder to combat the negative effects of climate change on agriculture.
You can find out more about how climate change is affecting global food production by watching the embedded short video.
Enhanced Sustainability Pressures
In high-income countries, sustainability in food production is increasingly becoming a top consumer concern. This presents challenges to farmers and others in the agriculture industry. Consumers are more likely to seek out sustainable products, while at the same time environmental regulations are intensifying. This means agrifood producers are having to implement strategies to advance sustainability across all operations.
The food commodity market is part of four main categories of commodities market. You can find out about each category in the infographic attachment.