UN Warns Food Prices Could Rise Sharply by Year-End

The world could be heading toward another wave of food inflation as conflicts in Iran and Ukraine, combined with the effects of El Nino, drive up production costs and threaten agricultural output, according to the chief economist of the United Nations Food and Agriculture Organization (FAO).

Food prices fueled the global inflation surge in 2022, but they have remained relatively stable this year, helping offset the impact of rising energy costs in some regions. However, FAO Chief Economist Maximo Torero warned that this period of stability is unlikely to last as higher oil prices, fertilizer shortages, diesel supply disruptions, and extreme weather increasingly affect food production costs.

"I expect that commodity prices will start to increase more now... and food prices will start increasing by the end of the year, and next year for sure they will increase more," Torero said in an interview. He noted that it typically takes between three and six months for higher commodity prices to be reflected in retail food prices.

Although wheat, corn, and rice prices have risen in recent months, Torero said current prices still largely reflect favorable harvests rather than the challenges expected in the next growing season.

He warned that tensions affecting the Strait of Hormuz have become a major concern for global agriculture because they influence the cost and availability of essential production inputs.

"The Strait of Hormuz is a problem that affects all the inputs of agricultural commodities, agricultural systems," Torero said. He explained that higher Brent crude prices increase expenses for irrigation, packaging, processing, and transportation, while natural gas is a critical component in fertilizer production.

At the same time, damage to Russia's oil and gas infrastructure caused by Ukraine has reduced exports of diesel and natural gas, both of which are essential for agricultural production. Because commodity markets are global, higher costs are being felt worldwide, although wealthier countries have greater financial resources to cushion the impact on farmers.

"You're hearing this in Europe, in the U.S., Brazil and in Asia. Tight margins are putting stress in planting decisions," Torero said.

The pressure is already becoming evident in major agricultural producers. According to the American Farm Bureau Federation, U.S. farmers growing the country's nine principal crops could collectively lose $32 billion in 2027 without federal assistance. The organization projects that every major crop analyzed will remain below the break-even point on a per-acre basis.

Higher production costs have already begun influencing planting decisions. During the first three months of the Iran conflict, global wheat and corn planting declined, while some U.S. farmers switched to soybeans because the crop requires less fertilizer.

Australia, one of the world's leading agricultural exporters, has also forecast a 21% drop in winter crop production. Officials cited sharp increases in fuel and fertilizer costs, along with uncertainty over the availability of key agricultural inputs.

Adding to these challenges, FAO expects this year's El Nino weather pattern to be particularly strong. The phenomenon is forecast to significantly alter global rainfall patterns, potentially reducing harvests, increasing commodity prices, and pushing tens of millions of people into acute food insecurity.

India's delayed monsoon is already raising concerns. Rainfall is expected to remain below average this month, creating risks for rice production that could further tighten global supplies and contribute to rising food prices.