Domestic food price inflation remains high around the world.
, Information from the latest month between February 2023 and May 2023 for which food price inflation data are available shows high inflation in most low- and middle-income countries, with inflation higher than 5% in in 66.7% of low-income countries, 81.4% of lower-middle-income countries, and 77% of upper-middle-income countries, with many experiencing double-digit inflation. In addition, 80.4% of high-income countries are experiencing high food price inflation. The most-affected countries are in Africa, North America, Latin America, South Asia, Europe, and Central Asia. In real terms, food price inflation exceeded overall inflation in 84.5% from 161 countries where data is available.
Download the latest brief on rising food insecurity and World Bank responses
The agricultural, cereal, and export price indices closed 4%, 4%, and 2% higher, respectively, than two weeks ago. Prices of wheat, rice, and maize all saw an increase and closed 7%, 2%, and 3% higher, respectively, compared to two weeks ago. On a year-on-year basis, maize and wheat prices are 20% and 3% lower, respectively, while rice prices are 10% higher. Maize and rice prices are 19% and 2% higher, respectively, than in January 2021, while wheat prices are 3% lower (See “pink sheet” data for agricultural commodity and food commodity prices indices, updated monthly.)
The June 2023 edition of the AMIS Market Monitor highlights that, although agricultural commodity prices have declined over the past 12 months, domestic food price inflation remains high in many countries. Despite a 20% year-on-year decrease in the Food and Agriculture Organization (FAO) food price index, a measure of the monthly change in international prices of a basket of food commodities, many countries continue to experience double-digit inflation. The strong U.S. dollar, which has kept commodity prices high in local currencies, is one reason for the high inflation in these countries; in addition, post-farmgate costs such as energy, transportation, and food manufacturing costs, which account for a large share of the retail price, remain high because of core inflationary pressures.
A recent World Bank blog elaborates on the themes outlined in the April 2023 edition of the Commodity Markets Outlook and discusses short- and long-term risks to downward price trends. In terms of short-term challenges, geopolitical risks, such as the ongoing Russian invasion of Ukraine, pose significant risk to agricultural markets, which may lead to price increases for wheat, maize, oilseeds, and fertilizers. Macroeconomic conditions also threaten food price decreases, with recent slow global growth decreasing demand and prices. Interest rate hikes by central banks may constrain borrowing and investments in agricultural production and exports, decreasing global supply and potentially increasing prices. Fluctuations in the exchange rate of local currencies against the U.S. dollar and depreciating local currencies in many countries also contribute to food price fluctuations in local markets.
How El Nino could prolong food inflation
Weather conditions pose significant short-term risks to downward price trends, with the U.S. National Oceanographic and Atmospheric Administration’s Climate Prediction Center announcing the formation of the El Niño–Southern Oscillation phenomenon. This phenomenon will lead parts of the world to experience warmer sea surface temperatures, driving record-warm air temperatures and altered precipitation patterns, which could limit crop yields, particularly in the southern hemisphere.
In addition, many export bans and licensing requirements imposed to address inflationary pressures are set to expire by the end of 2023. If these policies expire as planned, enabling price signals to work by facilitating adjustments by global producers and consumers may mitigate risks of higher prices.
Long-term risks, such as climate change, may threaten downward price trends. Extreme weather events are becoming more common, and rising temperatures are leading to more frequent droughts in fertile regions such as southern Africa, the western United States, and Mediterranean countries, which may lead to food shortages.
Following Russia’s invasion of Ukraine, trade-related policies imposed by countries have surged. The global food crisis has been partially made worse by the growing number of food trade restrictions put in place by countries with a goal of increasing domestic supply and reducing prices. As of June 5, 2023, twenty countries have implemented 27 food export bans, and 10 have implemented 14 export-limiting measures.
World Bank Action
As part of a comprehensive, global response to the food security crisis, in April 2022 the World Bank announced that it is making up to $30 billion available over a period of 15 months, including $12 billion in new projects. The financing is to scale up short- and long-term responses along four themes to boost food and nutrition security, reduce risks, and strengthen food systems: (i) support producers and consumers, (ii) facilitate increased trade in food and trade inputs, (iii) support vulnerable households, and (iv) invest in sustainable food and nutrition security.
The Bank has achieved its target of making $30 billion commitment for food and nutrition security response. Between April to December 2022, the Bank’s food and nutrition security commitments in new lending have passed the $12 billion mark – with almost half for Africa, which is one of the hardest hit regions by the food crisis. Some examples include:
The $766 million West Africa Food Systems Resilience Program is working to increase preparedness against food insecurity and improve the resilience of food systems in West Africa. The program is increasing digital advisory services for agriculture and food crisis prevention and management, boosting adaption capacity of agriculture system actors, and investing in regional food market integration and trade to increase food security. An additional $345 million is currently under preparation for Senegal, Sierra Leone and Togo.
A $150 million grant for the second phase of the Yemen Food Security Response and Resilience Project, which will help address food insecurity, strengthen resilience and protect livelihoods.
$50 million grant of additional financing for Tajikistan to mitigate food and nutrition insecurity impacts on households and enhance the overall resilience of the agriculture sector.
A $125 million project in Jordan aims to strengthen the development the agriculture sector by enhancing its climate resilience, increasing competitiveness and inclusion, and ensuring medium- to long-term food security.
A $300 million project in Bolivia that will contribute to increasing food security, market access and the adoption of climate-smart agricultural practices.
A $315 million loan to support Chad, Ghana and Sierra Leone to increase their preparedness against food insecurity and to improve the resilience of their food systems.
A $500 million Emergency Food Security and Resilience Support Project to bolster Egypt's efforts to ensure that poor and vulnerable households have uninterrupted access to bread, help strengthen the country's resilience to food crises, and support to reforms that will help improve nutritional outcomes.
A $130 million loan for Tunisia, seeking to lessen the impact of the Ukraine war by financing vital soft wheat imports and providing emergency support to cover barley imports for dairy production and seeds for smallholder farmers for the upcoming planting season.
The $2.3 billion Food Systems Resilience Program for Eastern and Southern Africa, helps countries in Eastern and Southern Africa increase the resilience of the region’s food systems and ability to tackle growing food insecurity. The program will enhance inter-agency food crisis response also boost medium- and long-term efforts for resilient agricultural production, sustainable development of natural resources, expanded market access, and a greater focus on food systems resilience in policymaking.
In May, the World Bank Group and the G7 Presidency co-convened the Global Alliance for Food Security, which aims to catalyze an immediate and concerted response to the unfolding global hunger crisis. The Alliance has developed the publicly accessible Global Food and Nutrition Security Dashboard, which provides timely information for global and local decision-makers to help improve coordination of the policy and financial response to the food crisis.
The heads of the FAO, IMF, World Bank Group, WFP, and WTO released a Third Joint Statement on February 8, 2023. The statement calls to prevent a worsening of the food and nutrition security crisis, further urgent actions are required to (i) rescue hunger hotspots, (ii) facilitate trade, improve the functioning of markets, and enhance the role of the private sector, and (iii) reform and repurpose harmful subsidies with careful targeting and efficiency. Countries should balance short-term urgent interventions with longer-term resilience efforts as they respond to the crisis.
