Several risks threaten the downward trajectory of food prices

A combination of El Niño, the collapse of the grain deal, and export bans from major food exporters could fuel food inflation globally

Food prices are the most important risk to inflation’s current downward trajectory: Russia’s recent withdrawal from the Black Sea Grain Initiative, El Niño, and India’s export ban on rice highlight the precarity of global food supply and threaten to increase the cost of food globally. MNCs reliant on agricultural products, notably grain and vegetable oils, should ensure they are prepared for a period of supply disruptions and a modest rise in prices though not on the same scale as in 2022. MNCs should also watch out for potential social unrest in countries that have few fiscal buffers and where food represents a large share of the consumer basket, such as Sub-Saharan Africa and the non-GCC Middle East. Finally, higher food inflation would also push up headline inflation and could potentially derail the trajectory of monetary policy in several markets. Should food (and therefore headline) inflation remain elevated, MNCs should expect central banks to keep interest rates higher for longer than originally expected.


  • Wholesale food prices have fallen substantially since their peak in March 2022, as disruptions caused by the war in Ukraine have eased. A major reason behind the fall in food prices was the Black Sea Grain Initiative, a deal between Russia and Ukraine that allowed for the resumption of grain exports out of Ukrainian ports.
  • In July 2023, Russia exited the Black Sea Grain Initiative and resumed attacks on Ukrainian grain storage units and alternative shipping routes, stopping Ukrainian grain from making its way into world markets.
  • Meanwhile, India, the world’s top rice exporter (around 40% of exports), recently imposed an export ban on non-basmati rice as inclement weather conditions threaten domestic supply. This has brought the rice price index to its highest level in over 10 years.
  • Further risks stem from El Niño, a global climatic event that results in weather disruptions such as droughts and floods, which is set to occur in 2024 and whose severity is yet unknown.

Our View

Globally, the good news is that food inflation has been on a downward trajectory in most markets, relieving pressure on consumers. However, it remains elevated in several countries, notably in Europe where high labor and energy costs are adding to retail prices, as well as in the Middle East and Africa where currency volatility and/or weakness is increasing the cost of importing food.

Furthermore, there exist several risks to food supply, which could cause food inflation to reverse its downward trend. Despite ongoing negotiations between Russia and the West, the Black Sea Grain Initiative remains suspended and is unlikely to be revived, depriving world markets of a sizable chunk of staples, such as wheat and corn. While alternative routes have been found to export the commodity, notably over land and through the Danube river, several of these are under Russian attack, and the others are costly and do not have the capacity to fully make up for the Black Sea shipping routes. Until a solution is found, markets dependent on Ukrainian grain, such as China, the Levant, East Africa, and Europe, are likely to face some supply disruptions, providing modest upward pressure to food inflation.

Uncertainty also reigns over the direction of India’s rice export ban; unfavorable weather and still-high fertilizer prices have increased the cost of the staple in India, leading the government to ban its export. Political considerations are also at play, given that 2024 is an election year in India. However, the ban could be short-lived, given that India enjoys robust strategic reserves of rice, and that the current harvest will hit markets in early Q4 2023. Yet while it remains in place, heavy importers of Indian rice, which are predominantly found in Southeast Asia (notably the Philippines, Malaysia, Vietnam) or West Africa are likely to face higher import prices and thus some upward pressure to inflation. However, higher prices will benefit rice exporting markets, such as Thailand. 

The starkest risk to food supply, however, is El Niño, which threatens climate conditions and thus harvests in markets all around the world. While the severity of the event is yet unknown, El Niño has the potential to severely disrupt agricultural production through events such as droughts, floods, or extreme temperatures, depending on the region. Countries with economies and export sectors heavily reliant on agriculture face potential shocks, as do those where food represents a large share of the consumer basket.

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