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World food prices set decade record: How will this impact Ukrainian supermarkets

In Ukraine, selling prices for basic food products have increased by tens of percent. Photo: AgroPortal.ua

In Ukraine, selling prices for basic food products have increased by tens of percent. Photo: AgroPortal.ua

The Food and Agriculture Organization of the United Nations (FAO) reports that it recorded a rise in world food prices in October to its highest level since 2011.

In Ukraine, selling prices for basic foodstuffs at the end of October increased by tens of percent on an annualized basis, and only potatoes fell in price. What will happen to food prices next?

World food prices rise for the third consecutive month

FAO's Food Price Index (FPI) reached 133.2 points in October. It increased by 3% compared to September. The rise in food prices in the world has been recorded for the third consecutive month, according to the FAO. In general, compared to October 2020, FPI increased by 30%.

If we take the price level in 2014-2016 as 100, then the price indices for certain product categories in October were as follows:

  • meat—112.1;
  • milk—120.7;
  • grain—137.1;
  • vegetable oil—184.8;
  • sugar—119.1.

The price index for vegetable oil (+ 9.6%) increased most of all in the world in October. According to FAO, this figure has reached an all-time high.

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Food price dynamics in Ukraine

Food prices in Ukraine are also growing. High world prices only partially foster this—it is profitable for producers to export expensive products, which can lead to their deficit in the domestic market. But there is still no deficit in any of the main product categories.

The main reason for the price rise in Ukraine are the rising costs of agricultural producers.

According to the results of January—September, in annual terms, the aggregate index of costs for agricultural production amounted to 136.0%.

Including:

  • crop production—133.7%;
  • livestock products—140.1%;

Price index for material and technical resources of industrial origin consumed by agriculture—139.4%.

As a result, many selling prices increased by tens of percent per quarter. And only a very good harvest led to a drop in prices in the Q3.

Manufacturers' reaction to prime cost increases

Amid the costliness of primary produce and energy resources in recent months, producers of fresh dairy products have noticeably raised the selling prices for their products. Consumers logically reacted to this by reducing demand, and the chains—by reducing applications. As a result, most operators reduced production and increased selling prices, the outlet Infagro reports.

From October 1, the gas price for the dairy enterprises has increased from 11 to 38 UAH per cubic meter.

Serhiy Kosiachenko, General Director of Yagotynsky Butter Plant, points out that prices for milk as a primary produce are steadily growing. Even in the summer season, when milk prices usually decrease, this did not happen this year. Moreover, there is a lack of quality primary produce.

In the next month or two, Serhiy Kosiachenko predicts an increase in prices for dairy products by 10% and hopes that the peak of the price rise for raw milk has already passed.

Purchasing prices for sunflower in Ukraine fell by 5-7%. This is due to the seasonal increase in supply, the completion of the harvest, and the expected high yield.

Because of the drought and poor harvest, prices for oats in the United States have increased by 54% over the past three months. In Ukraine, the price of oats is also growing, but not so quickly.

Maryna Marynych, an analyst at the agency UkrAgroConsult, points out that usually the Ukrainian oat market reacts poorly to changes in the world market, because oats in Ukraine are not an export crop. Primary in pricing in this market are general trends in major grain that have recently been upward.

In Ukraine, purchase prices for oats fluctuate within 6,000–6,300 UAH per ton, which is 250 UAH higher than a month earlier.

Dobrodiia Foods, one of the largest oatmeal companies, states that it is keeping the prices for its products down for now. But it warns that it will not be able to keep prices for a long time if grain prices continue to rise.

Harvesting is nearing completion in the Kherson region, where the bulk of domestic rice is now produced. The harvest will be heavy. This factor, as well as the supply of large volumes of rice to Ukraine from China led to the fact that purchase prices for rice cereals stabilized at the previous level of 16-16.5 UAH per kilogram.

At the same time, fuel and fertilizers have greatly increased in price during this year, the minimum wage has also increased. Therefore, the current selling prices will only allow the companies to redeem their costs.

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