By Nathalie Voit

A new report from Dutch agribusiness banking specialist Rabobank warns that food inflation will likely persist in 2022 as higher farm input expenses, shipping costs, a labor shortfall, and strong global demand for agricultural commodities stabilize prices upwardly. 

“Inflation in this space is almost certainly not just ‘temporary,” wrote researchers led by head of agri commodities market research at Rabobank Carlos Mera in the report. Next year “will likely bring fewer Covid-related disruptions, but when it comes to agricultural commodity prices, any sense of normalcy looks unlikely.”

The Dutch bank blamed a series of inflationary pressures for the grim outlook, including higher commodity prices, adverse weather, a red-hot energy market, and a strong dollar. The agricultural commodities market also faces significant consumer hedging by buyers looking to offset future supply shock risks. 

“It is highly unlikely that food prices will go back to the five or ten-year averages in 2022.” Increased demand for agricultural futures may subside in the coming year as vaccination rates and other COVID-related disruptions improve, but a complete ‘normalization’ of the supply chain is unlikely, the outlook concludes.  

According to a UN index that tracks a variety of key food staples, extensive food inflation has left global food prices at their highest since July of 2011. High wheat prices driven by La Niña weather conditions, low export stocks, and panic buying have left governments and central bankers scrambling to contain costs.

“Wheat, as a food staple, is the commodity where any potential shortage causes fear,” Mera wrote. He adds that events like the Arab Spring and the French Revolution have been linked to high wheat prices. 

The Chicago wheat futures contract is now at a nine-year high, with prices predicted to rise even more before finally falling in the second quarter of 2022. Soaring food prices, particularly for basic items like wheat, threaten to fuel social upheaval. “Social discontent is already being felt in a few countries, and is more likely to come in 2022,” the report says. 

Additionally, the new Omicron variant of the coronavirus threatens to add a “fresh level of uncertainty” to global stock markets, Rabobank’s senior market strategist Christian Lawrence said in an interview with Bloomberg. Any additional disruptions to supply or labor prompted by renewed lockdowns or social distancing measures may hence drive commodity-driven food inflation through the roof. 

“Although the speculative appetite for agri-commodities may seem exaggerated, it is hard to see it going down too much. Low interest rates, potential further fiscal stimulus packages, good global demand, and potential adverse weather are likely to sustain high prices in agri-commodities through 2021,” the report concluded.