Agri-food analysis – Do you reap what you sow?
The global agri-food sector has experienced several shocks over the past year - health, geopolitical, climatic and biological. The sector proved resilient overall to the consequences of the COVID-19 health crisis due to its essential nature, and benefited greatly from the global economic recovery in 2021. However, it has been weakened by the Russian military intervention in Ukraine (a major agricultural exporter), various epizootics, and extreme weather events.
The downturn in global activity is expected to reinforce this trend. The FAO food price index reached its highest value since September 2011 in May. Indeed, the increase in energy and fertilizer prices (Russia + Belarus - major producers) has caused the price of cereals and vegetable oils to soar, and, in the medium-term, will push agricultural production costs throughout the agri-food value chain. Thus, meat, egg and milk production costs have risen sharply over the past six months, driven by soaring feed prices.
According to the 6th IPCC report, extreme weather events are now occurring at a rate not witnessed since the beginning of the 20th century and are set to accelerate with global warming. Therefore, extreme weather events are expected to recur with increasing regularity - such as localized heat waves, major floods as in Pakistan, forest fires, or weather phenomena such as El Niño/La Niña. The latter, characterized by strong temperature variations in the South Pacific, is expected to start again in November, mainly affecting the Argentinean and Brazilian corn and soybean crops. Furthermore, Coface expects biological risks to put downward pressure on global agricultural production this year - recently exacerbated by the African Swine Fever (ASF) epidemic, which continues to plague Europe and Africa, despite its near disappearance in Asia, as well as the consequences of the expansion of the Fall armyworm and the locust invasion in Africa.
Signing of the Black Sea Grains Initiative and the likely prospect of La Niña fading toward the end of Q1 2023 will serve to mitigate some of the pressure on global food supplies. However, we caution that food prices are likely to remain elevated through H1 2023 and into H2 2023, resulting in continued pressure on global food security.
Finally, the difficulties of the agricultural sector, because of particularly unfavourable economic shocks, are pushing the European authorities to delay the progress of 'environmental' initiatives for agriculture, while the slowdown in the production of certain cereals (maize) and soaring production costs are threatening food supplies on the continent and throughout the world.