Food could get pricier again if El Nino hits sugar and palm oil

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MANILA (dpa): While consumer price inflation (CPI) has tapered off compared with the spikes seen in 2022, shoppers are faced with more expensive food than before the Covid pandemic.

By March 2023, European Union shoppers were paying 61% more for sugar on average than they were a year earlier, a surge that has put further upward pressure on prices of sugary goods such as confectionery. Worldwide, the year-on-year increase was 40% to June, according price data analysed by business intelligence company The Smart Cube.

And while the European Union (EU) CPI was 5.3% in July, down on the 8.9% in the same month in 2022, the onset of the El Nino storm system is prompting concerns about supplies and prices later in the year.

Food production giant India has restricted exports of commodities such as rice and sugar to try to make sure of domestic supplies in the event of a bad harvest.

Mid-August saw some optimism in the world sugar market due to predictions of a good harvest in Brazil, the world’s leading cane exporter, and yet the wider prospects of ample supply - and therefore reduced prices - are more sickly than sweet.

There could be more of the same to come. "Global sugar prices will be sensitive to El Niño developments" and "the diversion of sugarcane to ethanol [fuel] production," warned BMI - a Fitch Solutions Company - in a new report.

BMI said the storm system could also affect production of palm oil, the world’s most widely-used vegetable oil, which due to its versatility is not just used for cooking but as an ingredient in around half the packaged items for sale in supermarkets, according to the WWF.

Over 80% of the commodity’s exports come from Indonesia and Malaysia, meaning availability depends heavily on just two countries. Prices would go up if supply was cut by a poor harvest, BMI warned, adding that the palm price is also affected by availability of and prices of other vegetable oils.

"In July, a 12.1% [month-on-month] increase in the edible oil sub-index, driven by concerns as to the fate of the now-expired Black Sea Grain Initiative (BSGI) as well as weather conditions in North America, drove the UN's food price index to its largest monthly increase since March 2022," BMI explained.

Palm oil supplies and prices have, like sugar, been affected by demands from the fuel industry as it seeks greener replacements for petroleum.

But palm oil remains a much-maligned commodity due to plantations being grown on deforested ground, sometimes cleared by fires that spread via flammable peatland and choking cities in the region.

Brussels and Jakarta have long been at odds over palm oil, as EU officials aim to limit its use inside the bloc. However, as the WWF acknowledges, palm "supplies 40% of the world’s vegetable oil demand on just under 6% of the land used to produce all vegetable oils," posing a dilemma for consumers, environmentalists and policy-makers.