Food prices fall on world markets but not on kitchen tables

A restaurant on the outskirts of Nairobi skimps on the size of its chapatis — a flaky, chewy Kenyan flatbread — to save on cooking oil. Cash-strapped Pakistanis reluctantly go vegetarian, dropping beef and chicken from their diets because they can no longer afford meat. In Hungary, a café pulls burgers and fries off the menu, trying to dodge the high cost of oil and beef.

Around the world, food prices are persistently, painfully high. Puzzlingly, too. On global markets, the prices of grains, vegetable oil, dairy and other agricultural commodities have fallen steadily from record highs. But the relief hasn't made it to the real world of shopkeepers, street vendors, and families trying to make ends meet.

"We cannot afford to eat lunch and dinner on most days because we still have rent and school fees to pay," said Linnah Meuni, a Kenyan mother of four.

She says a 2-kilogram (4.4-pound) packet of corn flour costs twice what she earns a day selling vegetables at a kiosk.

Food prices were already running high when Russia invaded Ukraine in February last year, disrupting trade in grain and fertilizer and sending prices up even more. But on a global scale, that price shock ended long ago.

The United Nations says food prices have fallen for 12 straight months, helped by decent harvests in places like Brazil and Russia and a fragile wartime agreement to allow grain shipments out of the Black Sea.

The UN Food and Agriculture Organization's food price index is lower than it was when Russian troops entered Ukraine.

Yet somehow exorbitant food prices that people have little choice but to pay are still climbing, contributing disproportionately to painfully high inflation from the United States and Europe to the struggling countries of the developing world.

Food markets are so interconnected that "wherever you are in the world, you feel the effect if global prices go up," said Ian Mitchell, an economist and London-based co-director of the Europe program at the Center for Global Development.

Why is food price inflation so intractable, if not in world commodity markets, then where it counts — in bazaars and grocery stores and kitchen tables around the world?

Joseph Glauber, former chief economist at the US Department of Agriculture, notes that the price of specific agricultural products — oranges, wheat, livestock — are just the beginning.

In the United States, where food prices were up 8.5% last month from a year earlier, he says that "75% of the costs are coming after it leaves the farm. It's energy costs. It's all the processing costs. All the transportation costs. All the labor costs.''

And many of those costs are embedded in so-called core inflation, which excludes volatile food and energy prices and has proven stubbornly hard to wring out of the world economy. Food prices soared 19.5% in the European Union last month from a year earlier and 19.2% in the U.K., the biggest increase in nearly 46 years.

Food inflation, Glauber says, "will come down, but it's going to come down slowly, largely because these other factors are still running pretty high."

Others, including US President Joe Biden, see another culprit: a wave of mergers that have, over the years, reduced competition in the food industry.

The White House last year complained that just four meatpacking companies control 85% of the US beef market. Likewise, just four firms control 70% of the pork market and 54% of the poultry market. Those companies, critics say, can and do use their market power to raise prices.

Glauber, now a senior research fellow at the International Food Policy Research Institute, isn't convinced that consolidation in agribusiness is to blame for persistently high food prices.

Sure, he says, big agribusinesses can rake in profits when prices rise. But things usually even out over time, and their profits diminish in lean times.

"There's a lot of market factors right now, fundamentals, that can explain why we have such inflation," he says. "I couldn't point my finger at the fact that we just have a handful of meat producers."

Outside the United States, he says, a strong dollar is to blame for keeping prices high. In other recent food-price crunches, like in 2007-2008, the dollar wasn't especially strong.

"This time around, we've had a strong dollar and an appreciating dollar," Glauber said. "Prices for corn and wheat are quoted in dollars per ton. You put that in local currency terms, and because of the strong dollar, that means they haven't seen" the price drops that show up in commodity markets and the UN food price index.

In Kenya, drought added to food shortages and high prices arising from the impact of war in Ukraine, and costs have stayed stubbornly high ever since.

Corn flour, a staple in Kenyan households that is used to make corn meal known as ugali, has doubled in price over the last year. After the 2022 elections, President William Ruto ended subsidies meant to cushion consumers from higher prices. Nonetheless, he has promised to bring down corn flour prices.

Kenyan millers bought wheat when global prices were high last year; they also have been contending with high production costs arising from bigger fuel bills.

In response, small Kenyan restaurants like Mark Kioko's have had to raise prices and sometimes cut back on portions.

"We had to reduce the size of our chapatis because even after we increased the price, we were suffering because cooking oil prices have also remained high," Kioko says.

In Hungary, people are increasingly unable to cope with the biggest spike in food prices in the EU, reaching 45% in March.

To keep up with rising ingredient costs, Cafe Csiga in central Budapest has raised prices by around 30%.

"Our chef closely follows prices on a daily basis, so the procurement of kitchen ingredients is tightly controlled," said the restaurant's general manager, Andras Kelemen. The café even dropped burgers and French fries from the menu.

Joszef Varga, a fruit and vegetable seller in Budapest's historic Grand Market Hall, says his wholesale costs have risen by 20% to 30%. All his customers have noticed the price spikes — some more than others.

"Those with more money in their wallets buy more, and those with less buy less," he said. "You can feel it significantly in people, they complain that everything is more expensive."

In Pakistan, shop owner Mohammad Ali says some customers are going meatless, sticking to vegetables and beans instead. Even the price of vegetables, beans, rice and wheat are up as much as 50%.

Sitting at her mud-brick home outside the capital of Islamabad, 45-year-old widow Zubaida Bibi says: "Our life was never easy, but now the price of everything has increased so much that it has become difficult to live."

This month, she stood in a long line to get free wheat from Prime Minister Shahbaz Sharif's government during the Islamic holy month of Ramadan. Bibi works as a maid, earning just 8,000 Pakistani rupees ($30) a month.

"We need many other things, but we don't have enough money to buy food for our children," she said.

She gets money from her younger brother Sher Khan to stay afloat. But he's vulnerable, too: Rising fuel costs may force him to close his roadside tea stall.

"Increasing inflation has ruined my budget," he said. "I earn less and spend more."