Agflation to hit animal protein and dairy ind...

Agflation to hit animal protein and dairy industries

Skyrocketing agricultural commodity prices are causing the world to re-enter a period of "agflation", with food prices forecast to reach record highs in 2013 and to continue to rise well into Q3 2013. Unlike the staple grain shortage of 2008, this year's scarcity will affect feed intensive crops with serious repercussions for the animal protein and dairy industries.

Luke Chandler Global Head of Agri Commodity Markets Research at Rabobank commented, that the impact on the poorest consumers should be reduced this time around, as purchasers were able to switch consumption from animal protein back towards staple grains like rice and wheat. These commodities were currently 30% cheaper than their 2008 peaks. Nonetheless, price rises were likely to stall the long-term trend towards higher protein diets in Asia, the Middle East and North Africa. In developed economies – especially the US and Europe – where meat and corn price elasticity was low, the knock-on effect of high grain prices would be felt for some time to come.

Rabobank estimates that the Food and Agricultural Organisation (FAO) Food Price Index will rise by 15% by the end of June 2013. In order for demand rationing to take place, in turn encouraging a supply response, prices will need to stay high. As such Rabobank expects prices – particularly for grains and oilseeds – to remain at elevated levels for at least the next 12 months.

On top of that, Rabobank warns that global food stocks have not been replenished since 2008, leaving the market without any buffer to adverse growing conditions. Efforts by governments to rebuild stocks are likely to add to food prices and take supplies off the market at a time when they are most needed.
Source: Rabobank