Food inflation to intensify into 2027, FAO’s Torero warns

A historically strong El Niño and the war on Iran are pushing up global food prices, and analysts expect the pressure to last well into 2027. A Reuters analysis published on October 19 found that the effects are already showing up in local markets: rice prices are at record highs in Indonesia, bread in Egypt costs about a quarter more, and sugar in India hit an all-time high after the country's weakest monsoon in more than a decade.finance.yahoo.com

"We will see a bigger impact towards the end of the year, at the beginning of next year and potentially throughout next year," said Maximo Torero, chief economist at the United Nations Food and Agriculture Organization (FAO).finance.yahoo.com

Supply shocks pile up

The FAO Food Price Index averaged 136.0 points in September. That was up 1.5% from August, 5.8% higher than a year earlier, and the highest reading since November 2022. The World Bank found that food prices outpaced headline inflation in 22% of the 150 countries it analyzed in the September quarter, up from 14% the quarter before.fao.org+1

According to Reuters, the US-Israeli war on Iran has raised fuel costs and disrupted fertilizer exports through the Strait of Hormuz. Attacks on Black Sea grain infrastructure have cut wheat shipments, and freight rates on some routes have risen about 50%. Wheat prices are up more than 30% this year. Higher costs are reaching food companies too: Nestlé India and Indonesia's Indofood PT Indofood Sukses Makmur Tbk both cited rising input and shipping costs.finance.yahoo.com

Weather risks to future harvests

NOAA's Climate Prediction Center gives a greater than 83% chance that a strong-to-very strong El Niño will persist through January–March 2027, and possibly a historic one. Aneeka Gupta, a strategist at WisdomTree, said the weather damage could take six to 12 months to show up in harvests. That lag points to 2027 for Australia, India, West Africa and Southeast Asia's palm oil and coffee regions.finews.com+1

Gupta's analysis estimates that 31 Middle Eastern ammonia plants have been hit or shut down. Gulf states supply about 43% of the world's seaborne urea exports, and WisdomTree expects fertilizer prices to stay above pre-war levels through 2028. This adds to the risk for corn, which depends heavily on nitrogen fertilizer. Sugar faces two pressures at once: weather risk and high energy prices, which lead Brazilian mills to turn more cane into ethanol. WisdomTree also flagged dry spells in Vietnam and Indonesia that could hurt the 2027/28 Robusta coffee crop, even though Robusta prices are near recent lows.finews.com

Large inventories are now the main protection, and they are getting thinner. Alexander Karavaytsev of the International Grains Council warned that importers returning to world markets could bring "a significant new wave of demand." He added: "There is significant upside risk in prices".finance.yahoo.com