- Global food prices hit an 11-year high in January, mainly driven by vegetable oils, according to the latest FAO Food Price Index, a monthly measure of international prices for commonly traded food commodities.
- The FAO's Vegetable Oils Price Index rose 4.2% in January, setting an all-time high. Palm oil prices rose on concerns over supply from Indonesia, the world’s largest exporter of the ingredient, while soy, sunflower seed and rapeseed oil prices also grew around tighter supplies and growing demand.
- Continuing supply chain disruptions around the world, driven by a mix of labor shortages, extreme weather and unrelenting demand, have pushed food commodity prices upward and pressured CPGs to pass along the higher costs in 2022.
Used in everything from food to fuel, vegetable oils truly grease the world economy. With so much demand and supply for some types of oils limited to a few nations, it doesn't take much to trigger an upward price trend.
"Reduced export availabilities on top of other supply-side constraints, especially labour shortages and unfavourable weather, largely pushed vegetable oil prices up to an all-time high," said Boubaker Ben-Belhassen, director of FAO’s Markets and Trade Division, in a statement. "There is a concern the impacts of these constraints will not ease quickly.”
Palm oil crystallizes the dynamics at work. The oil is present in everything from chips, ice cream and frozen pizza dough, to detergent and beauty products, as well as biofuel. Much of the increase in palm oil prices has been driven by concerns that Indonesia, the largest producer and exporter globally, would tighten exports to help it control rising prices at home. Last week, the nation issued a mandate requiring domestic producers to set aside 20% of their palm oil shipments for local buyers, S&P Global reported. This could encourage countries to shift to Malaysia, the second-largest producer, for supply — or even switch to different oils, like soybean, for their needs, according to Nikkei Asia.
The FAO's Dairy Price Index rose 2.4% in January — its fifth consecutive month of increases — on higher butter and skim milk powder prices. FAO cited reduced exports from Western Europe and expected production declines in Oceania for the tightening in global dairy markets, along with processing and transportation issues tied to labor shortages during the pandemic.
According to the latest USDA dairy market report for the week ending Jan. 28, the average price of butter actually slipped to $2.61 per pound. The agency noted that butter production is trending upward, but output is hamstrung by labor issues and delayed supply deliveries at some production facilities. When examined over a longer timeframe, butter prices are up sharply. A recent analysis of USDA data by IndexBox found that the average price of grade AA butter rose 40% year over year in December. In its outlook for 2022, USDA projected that dairy product prices would rise between 1.5% and 2.5%.
For food manufacturers, dealing with price increases and shortages of such key ingredients has required them to practice a complex calculus: weighing whether and when to raise prices to cover their costs. Last week, Kraft Heinz announced in a letter to its wholesalers that it would raise prices in March on dozens of products, including Oscar Mayer hot dogs, Velveeta cheese, Maxwell House coffee and Capri Sun beverages, citing "constrained supply, logistic bottlenecks and weather-driven crop losses," as well as higher raw ingredient and freight costs, CNN Business reported. This would mark its second round of price increases since November.