Business

As wheat prices soar, the world’s consumers vote with their feet

Global wheat consumption is headed for its biggest annual decline in decades as record inflation forces consumers and companies to use less and replace the grain with cheaper alternatives, amid growing food insecurity.

Consumers may face even higher wheat prices in the second half of 2022 as importers, who until now have supplied cargoes bought several months earlier at cheaper prices, pass on the costs from when wheat prices scaled decade highs in May.

Global wheat consumption in July-December could drop by 5 per cent-8pc from a year ago, analysts, traders and millers say, much faster than the US Department of Agriculture’s forecast 1pc contraction.

“There is going to be a drop in wheat demand for animal feed in Europe and China. Wheat demand for human consumption has also slowed in key importing countries around the world,” said Erin Collier, an economist at UN’s Food and Agriculture Organisation.

“High prices have raised food security worries in parts of Asia and Africa where countries are not able to secure enough supplies from the international market.”

Millions are facing mounting food costs and insecurity after Russia’s invasion of Ukraine and adverse weather in key exporting countries drove cereal prices to all-time highs.

Benchmark wheat Wv1 futures jumped 40pc this year to a record high in March before retreating recently, though physical prices remain high.

Wheat shipments from the Black Sea region are quoted at around $400-$410 a tonne, including cost and freight for delivery to the Middle East and Asia. Prices are down from a peak of about $500 a tonne reached a few months ago, but remain well above last year’s average of about $300.

“Wheat supplies are still super tight,” said Ole Houe at brokerage IKON Commodities in Sydney. “We are not sure how much wheat is going to come out of the Black Sea and there is adverse weather in other exporting countries.”

Countries likely to struggle with wheat imports include Yemen, South Sudan, Sudan, Syria, Ethiopia, Afghanistan and Sri Lanka, FAO’s Collier told Reuters.

As rising costs strain household budgets, protests have erupted across the world with people taking to the streets from China and Malaysia to Italy, South Africa and Argentina.

In Indonesia, the world’s second-largest wheat buyer, consumption already fell in the first five months of 2022 and a bigger decline is expected as higher costs feed through the supply chain.

Yan Aisa Allamanda, a 37-year-old baker in Jakarta, is paying around 10,000 rupiah ($0.6720) per kilogram for wheat flour, up from around 8,200 rupiah earlier this year.

“I had to increase my selling price…but I fear that higher prices will discourage consumers,” she said.

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