Why food inflation is no longer just about supply and demand?

When we speak of Black Sea, it's the largest exporter of wheat.

It's the largest exporter of sunflower oil.

So a lot of markets have reacted in response to that.

And that kind of brings us to something that Samyak's been tracking very closely, which is the UN's food price index.

And that's a very well-established metric when food inflation is measured.

So, Tamik, can you give us a quick introduction to this and what exactly you have seen in terms of the food price index?

Yeah, Aditya, so UN FAO food price index is probably the closest that we have got to a global benchmark for food inflation.

It comprises of a basket covering cereals, veg oils, dairy, meat, sugar and other relevant food commodities.

So it gives us a broad indication of what is happening across the global system, right? And what makes this index useful is it captures interaction amongst multiple markets.

So what happened during like this onset of this inflationary curve during the conflict between Russia, Ukraine, we saw veg oils and grains surging because like these two countries and the region was one of the major agriculture exporter of these commodities.

And the index hit an all-time record high in March 22, right, during the time that this conflict broke out, right.

And this was heavily driven by the vegetable prices surge.

According to index, this was marked at around 25% month-on-month.

This, in fact, like trickled down to meat price index climbing its own historic high in mid-2022 due to disruption to Ukrainian corn, barley, and fertilizer prices and on and on.

Coming back to the most recent disruption that we have seen and that has led to these food prices elevations or inflation, if you might term it, is the weather events, the Middle East disruption, the biofuel policy changes, trade restrictions.

So the recent data point of the August 2006 food price index is again up 2% from the previous month to 133 points.

And this is again being led by the veg oil price index surging to multi-year high of 196%.

So one thing I'd like to stress in amongst this argument is like the food inflation is no longer just a grain story.

It's more like vegetable oils, sugar and proteins have also become increasingly important drivers.

That is being clubbed by the feed and fertilizer costs in turn affecting livestock productions and other staple economics.

So when the index moves, it often reflects several different supply chains interacting simultaneously rather than one single commodity focus shock.

Yeah, I remember when the war broke out in the Black Sea region, the UN food price index touched a record high.

I think it was some 159 or 160 at that time.

And that's the highest since measurement began.

And currently it's still in the 130s.