Ethiopia, Egypt among the big winners as oil cuts $9bn off global food import bill—but weak currencies could crash the party

An oversupply of oil in global markets has caused low prices, making moving everything that much cheaper.

THE world’s food bill just fell $9 billion from a previous estimate as a glut of oil and ships cut transportation costs, adding to an oversupply of everything from grains to sugar, according to the United Nations.

Countries around the globe probably spent $1.076 trillion importing food in 2015, a five-year low, the UN’s Food & Agriculture Organization estimated. That’s 0.8% less than the Rome-based agency had forecast in October and marks the first drop since 2009.

The cost was 20% less than a record $1.345 trillion in 2014 as bumper harvests boosted global supplies, helping bring down costs, FAO data showed. 

Oil prices declined for a third year in 2015 as nations from Saudi Arabia to Iraq decided against curbing supply, adding to a glut from a US boom in production of shale energy deposits. That cut shipping costs, with the Baltic Dry Index sliding to a record low in February.

“Cereal and livestock bills, both in terms of a decline in prices and a fall in trade volumes, are again culpable for the lower cost of food imports,” said Adam Prakash, an FAO economist. 

“Freight costs also plummeted making unit costs of importing cheaper.”

A gauge of agricultural commodities finished 2015 at the lowest year-end level since 2006. Reduced energy prices also cut fertiliser costs.

Poor harvests

Lower food costs are benefiting large importers in the Middle East and Africa region, said Cole Martin, a senior commodities analyst at BMI Research, a unit of Fitch Ratings Ltd. 

Nations from Egypt, the largest wheat buyer, to Ethiopia are gaining as they run large food deficits or have had poor harvests due to the El Nino weather pattern, he said.

While lower prices can benefit consumers, the strength of the US dollar may mean a “severe burden” on currency reserves for others, Prakash said. 

Because commodities are priced in dollars, consumers in some nations where the local currency depreciated may be paying more, said Hamish Smith, an economist at Capital Economics Ltd.

“Low international food prices are beneficial so long as their currencies do not fall sufficiently to wipe out the gains of low prices,” Prakash said. 

A strong dollar “can prove onerous to many of the most vulnerable countries, which are net importers of necessities, notably of foodstuffs.” (Bloomberg)

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