“Large global agricultural supplies continue to put downward pressure on prices,” warns Wandile Sihlobo, an agricultural economist and author of the recently published book A country of two agricultures: The disparities, the challenges, the solutions.
Sihlobo’s assessment comes in the wake of the Food and Agriculture Organisation of the United Nations (FAO) releasing its global food price index for August 2023, which averaged at 121.4 points, marking a 2% decline from July. Notably, this index now stands at a staggering 24% below its peak recorded in March 2022.
According to Sihlobo, the drop in food prices reported by the FAO primarily stems from declines in the price indices for key agricultural products, including dairy products, vegetable oils, meat, and cereals.
While recent developments, such as Russia’s refusal to renew the Black Sea Grain Deal and India’s ban on certain rice exports, have stirred concerns in the agricultural sector, Sihlobo emphasises that the primary driver of these price movements is the global surplus of agricultural supplies.
“This time, the problem is the movement of supplies, not the limited harvest. There are ample global grains and oilseed supplies, regardless of the worries about the effect of the extreme weather in the US, Canada, and parts of Asia,” Sihlobo notes.
For instance, the U.S. department of agriculture (USDA) recently published its monthly flagship report, the World agricultural supply and demand estimates. Sihlobo points out that “the USDA forecasts the 2023-2024 global wheat production at 797 million tonnes, up 1% from the previous season. The larger harvest is anticipated in the European Union region, the US, Canada, China, India, and Turkey.”
What about maize, rice and soybean production?
Furthermore, Sihlobo highlights that the USDA predicts “a substantial 6% increase in global maize production for the 2023-24 season, reaching 1.2 billion tonnes,” with significant contributions from key producers like the United States, Brazil, Argentina, China, and the EU region.
While discussing rice, he states, “Another important staple crop is rice, whose 2023-2024 global harvest is estimated at 521 million tonnes. This is up by 2% from the previous season. Vietnam, Thailand, the US, Pakistan, China, Indonesia, Bangladesh, the Philippines, and Brazil are the key drivers of this increase in the global rice harvest.”
Regarding soybeans, Sihlobo points out, “The 2023-2024 global soybean crop is estimated at 405 million tonnes, up 10% from the previous season. The significant recovery in South America’s soybean harvest after a few years of drought and an expected large harvest in the US, Brazil, Argentina, China, Russia, Ukraine, and Uruguay are the main drivers of the expected large global soybean crop.”
However, Sihlobo cautions, “Although we are still early in the season, and a lot could change depending on the weather conditions over the coming weeks and months and crop development in the Southern Hemisphere when the season starts, the current prospects are positive.”
He highlights that the significant risk lies in tthe ban on India’s rice exports, which “adds upside pressure on prices and limits the gains of the sizable global harvest by slowing prices to a consumer.” Additionally, the renowned economist raises concerns about “Russia’s decision to halt the Black Sea Grain Deal, brokered by the UN and Turkey to combat a global food crisis,” which “presents a risk to global grain prices.”
In conclusion, Sihlobo underscores the need to “consistently monitor the crop conditions in the Southern Hemisphere when the season starts in October” and acknowledges that the global agricultural market remains dynamic and responsive to evolving supply and demand dynamics.