Food to remain affordable in near term, says the Economist Intelligence Unit

Rebecca Ellinor Tyler is former editor of Supply Management
21 October 2015

Ample food stocks and weak energy prices will ensure food affordability for now, according to the Economist Intelligence Unit (EIU).

While food commodity prices are expected to increase marginally in the near term as global harvests fail to meet recent records and income and demographic trends drive increases in food demand, an accumulation of food stocks in recent years will continue to ensure available, affordable food.

In the longer term, the EIU’s latest report said, the cyclical pattern of supply and demand means food prices are likely to rise, but investments in and the prioritisation of agricultural innovation and productivity have the capacity to offset the rise of prices as populations grow and demand continues to rise.

Crude oil prices influence the cost of meals because they underlie costs such as transportation and production inputs. “Oil demand is projected to grow slowly, but it will not catch up with continued increases in production,” the EIU said.

Global food prices dipped to a five-year low in the third quarter of 2015. The cost of food, as measured by The EIU's Food, Feedstuffs and Beverages (FFB) index, dropped by one-third from its peak in 2011. “Successive bumper harvests have improved global food availability and swelled stocks, putting downward pressure on prices. The collapse in crude oil prices since mid-2014 has compounded this price decline,” said the EIU.

Food prices, like other raw materials, have been hit by concerns about softening demand from China.

The EIU’s Global Food Security Index (GFSI) concluded further falls would improve access to affordable food, especially in low-income countries. Yet the EIU expects food prices to rebound mildly in 2016, as drivers of the current price declines begin to slowly reverse.

“Global harvests are unlikely to match their recent records, while income and demographic trends will underpin steady increases in food demand,” the EIU added. It said a pick-up in global crude oil prices will put upward pressure on food costs.

However, food stocks accumulated in recent years will ensure continued availability and oil prices will remain historically low - the EIU currently expects its FFB index to increase by only 2.1 per cent in 2016 and 5.4 per cent in 2017. “By the standards of the last decade, food will remain relatively cheap,” it said.

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