Global commodity prices are expected to decline this year at the fastest clip since the onset of the Covid-19 pandemic, clouding the growth prospects of almost two-thirds of developing economies that depend on commodity exports, the World Bank’s latest ‘Commodity Markets Outlook’ report states.

The drop in prices, however, is expected to bring little relief to the nearly 350-million people across the world who face food insecurity.

Although food prices are expected to fall by 8% this year, they will still be at the second-highest level since 1975.

Moreover, as of February this year, yearly food price inflation is at 20% globally, the highest level over the past two decades.

“The surge in food and energy prices after Russia’s invasion of Ukraine has largely passed due to slowing economic growth, a moderate winter and reallocations in the commodity trade. But this is of little comfort to consumers in many countries,” World Bank chief economist and Development Economics senior VP Indermit Gill avers.

“In real terms, food prices will remain at one of the highest levels of the past five decades. Governments should avoid trade restrictions and protect their poorest citizens using targeted income-support programmes rather than price controls,” he suggests.

The World Bank commodity price index declined by 32% from its historic peak in June 2022, the sharpest drop since the Covid-19 pandemic started.

As a result, the price surges that followed Russia’s invasion of Ukraine have largely been unwound owing to a combination of slowing global economic activity, favourable winter weather and the redirection of trade of key commodity exports from Russia and Ukraine, the report outlines.

By March of this year, prices of wheat and natural gas had registered especially large drops from their peaks in May and August last year, respectively.

Despite this, prices of all major commodity groups and about four-fifths of individual commodities remain above their 2015 to 2019 average levels.

Fertiliser prices reached an all-time high in real terms in 2022, while the food price index reached its second-highest level in real terms – behind the 1973 to 1975 period of grain shortages, the report indicates.

Fertiliser prices fell in the first quarter of this year, reflecting declining input costs.

Despite this, fertiliser prices and affordability levels are still well above pre-pandemic levels.

China’s fertiliser exports have declined because of trade restrictions, while Russia’s ammonia exports to Europe have been replaced by Algeria, Egypt and Trinidad and Tobago.

The report highlights that agricultural prices were broadly unchanged between the final quarter of 2022 and the first quarter of this year – at 14% below their April 2022 peaks.

Renewal of the Black Sea Grain Initiative continued to help grain exports from Ukraine reach global markets.

The initiative, better harvests in other major grain-producing countries, and lower energy prices, have helped reduce agricultural commodity prices from their early-2022 peaks, the report states.

Grain prices fell 5% in the first quarter of this year, while prices of most other food commodities rose slightly.

In real terms, food prices continue to remain above levels observed during the 2007 to 2008 food crisis.

Elevated food prices contribute to higher food insecurity, with severe implications for poorer populations in many developing economies, the report warns.

Yearly domestic food price inflation across 146 countries averaged 20% in February, the highest level over the past two decades.

Of those, nine out of ten low- and middle-income countries face food price inflation above 5%.

OUTLOOK

Agricultural prices are projected to decline by 7% this year and ease further in 2024.

Food prices are expected to fall by 8% this year and 3% in 2024, assuming grain and oilseed exports from the Black Sea region remain stable.

Despite this, real food prices this year will remain at their second-highest levels since 1975 – exceeded only by 2022.

More than 349-million people globally are projected to face food insecurity this year – double the number in 2020 – because of high food and fertiliser prices, conflicts and economic and climate shocks.

The prevalence of natural disasters is associated with a significant increase in the number of food-insecure households, particularly in low-income countries.

Prices for agricultural raw materials, which include cotton, timber and rubber, will decline by about 6% this year, reflecting sluggish global industrial demand growth, and rebound by 2% in 2024 as China’s demand picks up.