Low-income countries hit hardest by spike in global food prices

Global food prices have been sharply rising as part of a broader increase in commodity prices, and the inflationary pressures could have serious consequences for the world’s poor, according to data from the World Bank and the United Nations.

In the latest edition of its biannual “Global Economic Prospects” report, released Tuesday, the World Bank said low-income countries are likely to be hit hardest by higher food prices for the remainder of this year.

“The [COVID-19] pandemic not only reversed gains in global poverty reduction for the first time in a generation but also deepened the challenges of food insecurity and rising food prices for many millions of people,” the report said. “This is particularly prevalent among the poorest countries and populations, where higher prices of food can devastate discretionary incomes.”

By the end of the year, some 100 million people in emerging market and developing economies “will have fallen back into extreme poverty,” the report said, warning that income losses in three-quarters of fragile and conflict-affected low-income countries will not be fully recovered by next year.

Global food prices in May spiked the most in over a decade, according to the Food and Agriculture Organization. The 40% year-on-year jump is causing alarm that inflation will have further devastating impacts on the world’s poorest, as staple food costs soar.

For example, the price of maize has skyrocketed 66% since January of last year, according to the World Bank, while wheat prices are up 23%. The spike in food prices is part of a wider global inflationary trajectory, in part brought about by supply chain disruptions and higher shipping costs, as well as pent-up demand and government spending.

The inflationary trends in agriculture are most pronounced in countries within South Asia and sub-Saharan Africa that have a history of higher food price inflation.

World Bank President David Malpass cautioned major food exporters against curbing trade, singling out Russia for criticism after Moscow recently imposed controls to cap rising costs in its domestic markets.

“There’s been a harmful tendency in the past for food exporters to restrain their exports,” Malpass said during a call with reporters Tuesday. “We strongly oppose that response by economies that are food exporters.”

Global economic growth is expected to explode this year, hitting 5.6%, according to the World Bank. But there will be a sharply uneven exit for countries emerging from the pandemic, with developing economies facing a potential triple hit from slower vaccine rollouts, rising inflation, and high levels of debt.

Those likely to be hit hardest by the rising cost of food are many of the same people who are last in line to be vaccinated. Malpass on Tuesday called for a better response on expanding vaccine distribution globally but declined to support waivers on intellectual property rights, saying this would hurt research and development.

Without faster vaccine rollouts, the global economic recovery will remain split, with advanced countries barreling ahead while the poor risk “being left behind,” according to the bank.

“This is like the tale of two recoveries. It is the best of times for advanced economies and probably it’s the worst of times for emerging market and developing economies,” said Ayhan Kose, an acting vice president at the World Bank.

Emily Janoch, a data analytics specialist at the not-for-profit CARE, said she is already seeing rising food prices hitting consumers in low-income countries, while food producers were unable to sufficiently raise prices due to constraints on markets brought on by the pandemic.

“It’s a loss on both sides for many communities,” she said, warning that food inflation is already biting — and hitting women harder than men.

“It’s the kind of thing that can be transitory, if we get the right resources in place now. But left unchecked … it’ll be something that will be even harder to come back from” next year, she said.

Josef Schmidhuber, an economist at FAO’s trade and markets division in Rome, said poor people in low-income countries tend to spend more than 60% of their income on food, leaving them particularly at risk.

“We are observing price increases across the board at the moment. It’s a rare event that prices increase across the board,” Schmidhuber said.

The question that remains is how high prices might get and for how long. Homi Kharas, a senior fellow in the Center for Sustainable Development at the Brookings Institution, said some low-income countries stand to gain from rising commodity prices — if they are food and energy exporters, for example.

“Many developing countries are benefiting from this. But there are going to be countries that get hurt,” Kharas said.

Of particular concern are countries that are highly dependent on sectors such as tourism that have not yet recovered. Those nations, including many small island developing states, may simply get hit by higher food prices with no increase in incoming revenue.

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