Global 'agflation' fuels meat price hikes, says report

A new report on world agriculture has warned that “imminent and significant” feed cost hikes will have a dramatic impact on global meat producers’ margins, leading to changes in the dynamics of supply and higher prices for consumers.

“Skyrocketing” agricultural commodity prices are behind the period of “agflation”, the Rabobank report stated, largely the result of severe droughts across key corn, soybean and grain exporting countries. The result will be to push food prices to record highs in 2013.  

The report said animal crop feeds harvests have been most affected and although grain and oilseed stocks are expected to rally, this would have “a significant knock-on effect on animal protein industries and other processing supply chains – raising prices for meat consumers and challenging processor margins around the globe”.

The report warned that the long production cycles of the animal protein and dairy industries would have a lingering effect on global food prices as herds (especially cattle) take longer to rebuild, maintaining upward pressure on food prices. It warned that there was likely to be an increase in slaughter rates in the short term, which would ease supply, but the mid to longer-term forecast is a contraction in herds, with a subsequent fall in production.

It said: “We expect lower margins will shift the supply of animal protein to a lower base, a bullish longer-term scenario that could result in diminished herds as economic growth and demand increases.”

Rabobank analysts said that the impact of these prices on poorer consumers would be different to the agflation of 2008, as purchasers could switch away from expensive animal proteins to cheaper staples of wheat and rice, which are around 30% cheaper now than they were in 2008.

Luke Chandler, global head of agri commodity markets research at Rabobank, said: “Price rises are likely to stall the long-term trend towards higher protein diets in Asia, the Middle East and North Africa. In developed economies – especially the US and Europe – where meat and corn price elasticity is low, the knock-on effect of high grain prices will be felt for some time to come.”
Demand for meat in markets most affected by rising prices – emerging markets in  Asia, the Middle East and North Africa – is likely to slow down, the report said, affecting high export countries such as the USA. However, growing markets such as China are likely to have the price increase muted by its government, the report claimed.