The tide of rebellion is fuelled by empty stomachs. From bread in the Arab Spring to flour in the French Revolution, soaring food and drink prices are behind uprisings that rocked the world. The last food price crises in 2008 and 2011 provided crucial sparks in waves of unrest that spanned the globe and even toppled governments.
Policymakers may therefore be looking nervously at commodities markets as rising food prices threaten to compound the misery of the Covid crisis. Corn prices have rocketed to their highest level in seven years, adding to building inflationary pressures in many economies. Could the cost of food reach crisis levels again?
“The direction at the moment is towards those levels,” says Wyn Morgan, an expert on the economics of food at the University of Sheffield.
“It’s not there yet and hopefully won’t get to that, but the problem is that you’ve also got other factors at play such as the price of oil, which has a big impact on food prices… It can, in extremis, lead to unrest. Food prices are so sensitive in some countries.”
Prices are not at crisis levels yet, but have risen sharply during the pandemic. Since last summer’s nadir, the food price index run by the UN Food and Agriculture Organization (FAO) has jumped to 113.3 points – just short of the 117.5 hit in 2008, but still some way below’s 2011 peak of 131.9.
The costs of key foodstuffs such as grains, dairy, sugar and some oils have rocketed after dropping when the pandemic initially struck, the FAO’s price trackers suggest. Corn prices have climbed 43pc in a year, soybeans costs are up more than 50pc and wheat has gained 15pc with all three hitting multi-year highs.
“The big picture is the uncertainty we have in the food market,” explains Abdolreza Abbassian, an economist at the FAO.
“The uncertainty is not so much related to Covid, as many people tend to believe. It really has to do with some traditional issues.”
A combination of factors are pushing costs higher, including rising oil prices, a weak dollar, surging shipping costs, dry weather and bumper Chinese demand.
“We do have a couple of issues here that we don’t have answers for, one of which is China and the other one is Russia,” says Abbassian.
China’s pig herd was devastated by African swine fever and rebuilding its stock has sucked in huge amounts of grains.
“It’s not only China. Quite a few countries are trying to frontload their imports,” says Carlos Mera, Rabobank commodities analyst.
He says large food companies are upping stocks amid fears of further supply chain disruption after a historically rocky 2020.
“Also, a few exporting countries are trying to export a bit less, like Argentina and Russia,” he says. “Particularly in Russia, where they put export taxes on wheat… so there’s a little bit of nationalism.”
Russia is vital for the supply for some foods. It is the biggest exporter of wheat and a large producer of many other staples. Moscow has stoked worries that rising food prices could lead to a bout of protectionism after it slapped export taxes on wheat to contain domestic cost pressures. Large producers attempting to hold down domestic prices in this way can send global costs surging.
“Russia is a big player in the world market,” says Abbassian. “Any talk of restrictions and of a slowdown in sales definitely makes the market a bit uncertain and volatile.”
The price rises are likely to be more benign for British shoppers, with commodities facing a long journey before a market surge hits the pockets of consumers in developed economies. But food inflation is far more important for many developing countries.
Bank of America analysts estimate that food makes up a third of the typical emerging market shopping basket. In countries such as India, this share can be as high as 50pc, meaning consumers feel the pinch badly when costs go up. In Britain, food accounts for under a tenth of the basket.
“The overall inflationary effects of this spike are likely meaningful,” says David Hauner, economist at Bank of America.
He predicts that “accelerating” food prices will feed through to inflation data in the coming months.
A spike in food costs will add to inflationary pressures in emerging markets already dealing with recovering oil prices, surging shipping costs and expectations of a post-pandemic surge in demand as rich countries start spending again.
That could cause headaches for central banks trying to support the recovery with ultra-low interest rates. A surge in inflation would put pressure on them to rein in price rises by hiking rates instead, piling pressure on borrowers.
“If food is a large proportion of the consumer price index in those countries, then a bounce in food prices will really fuel inflation, so that’s a big concern for central bankers,” Morgan says.
It remains unclear whether costs will hit crisis levels again. But history suggests governments ignore the threat of rising food prices at their peril.