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Wholesale Food Prices Fall, But Not For Consumers

FILE: A shopper is seen at a branch of South African retailer Pick n Pay in Johannesburg. Taken Oct. 20, 2010.

WASHINGTON - Around the world, food prices are persistently high. But on global commodity markets, the prices of grains, vegetable oil, dairy and other agricultural commodities have fallen steadily. But the relief hasn’t made it to the real world of shopkeepers, street vendors and families.

The United Nations says fwholesale food prices have fallen for 12 straight months, helped by decent harvests in places like Brazil and Russia and a fragile wartime agreement to allow grain shipments out of the Black Sea.

The U.N. Food and Agriculture Organization’s food price index is lower than it was when Russia attacked Ukraine.

Yet somehow exorbitant food prices that people have little choice but to pay are still climbing, contributing disproportionately to painfully high inflation from the United States and Europe to the struggling countries of the developing world.

In Kenya, another factor - drought - added to food shortages and high prices arising from the impact of war in Ukraine, and costs have stayed stubbornly high ever since.

Corn flour, a staple in Kenyan households that is used to make corn meal known as ugali, has doubled in price over the last year. After the 2022 elections, President Ruto ended subsidies meant to cushion consumers from higher prices. Nonetheless, he has promised to bring down corn flour prices.

Kenyan millers bought wheat when global prices were high last year; they also have been contending with high production costs arising from bigger fuel bills.

In response, small Kenyan restaurants like Mark Kioko's have had to raise prices and sometimes cut back on portions.

“We had to reduce the size of our chapatis because even after we increased the price, we were suffering because cooking oil prices have also remained high,” Kioko says.

Food markets are so interconnected that “wherever you are in the world, you feel the effect if global prices go up," said Ian Mitchell, an economist and London-based co-director of the Europe program at the Center for Global Development.

Why is food price inflation so intractable, if not in world commodity markets, then where it counts — in bazaars and grocery stores and kitchen tables around the world?

Joseph Glauber, former chief economist at the U.S. Department of Agriculture, notes that the prices of specific agricultural products — oranges, wheat, livestock — are just the beginning.

In the United States, where food prices were up 8.5% last month from a year earlier, he says that “75% of the costs are coming after it leaves the farm. It’s energy costs. It’s all the processing costs. All the transportation costs. All the labor costs.’’

And many of those costs are embedded in so-called core inflation, which excludes volatile food and energy prices and has proven stubbornly hard to wring out of the world economy. Food prices soared 19.5% in the European Union last month from a year earlier and 19.2% in the U.K., the biggest increase in nearly 46 years.

Food inflation, Glauber says, “will come down, but it’s going to come down slowly, largely because these other factors are still running pretty high."

Outside the United States, he says, a strong dollar is to blame for keeping prices high. In other recent food-price crunches, like in 2007-2008, the dollar wasn’t especially strong.

“This time around, we’ve had a strong dollar and an appreciating dollar," Glauber said. “Prices for corn and wheat are quoted in dollars per ton. You put that in local currency terms, and because of the strong dollar, that means they haven’t seen" the price drops that show up in commodity markets and the U.N. food price index.