Global food import bill to hit all-time high of $2 trillion

Food

Geneva, 11 Nov (Kanaga Raja) — Higher international food prices are set to lift the global food import bill to an all-time high of USD 1.94 trillion in 2022, higher than previously expected, the Food and Agriculture Organization of the United Nations (FAO) has said.

In its latest Food Outlook report, FAO said while this represents another increase by 10 percent, or USD 180 billion, over last year’s record level, the expansion is foreseen to slow significantly compared to the 18-percent increase registered in 2021 relative to 2020.

The anticipated slowdown in growth in 2022 reflects higher world food prices and depreciating currencies against the United States dollar, all of which are expected to weigh on the purchasing power of importers and subsequently on the quantity of imported foods, it added.

According to the FAO report, overall, in 2022, high-income countries (HICs) and upper-middle-income countries (UMICs) are expected to account for 85 percent of world expenditures on imported food and over 80 percent of the growth in these expenditures.

The bulk of the increase in the food import bill is expected to be cost-driven, reflecting record international food prices that come on the back of surging input prices as well as disrupted food supply chains, it said.

“Imports by low-income countries (LICs) are expected to become increasingly responsive to higher prices; their volumes are forecast to come to a standstill in 2022,” said FAO.

FAO said the anticipated increase in the 2022 import bill is almost entirely on account of higher prices, with USD 157 billion due to higher international prices and merely USD 27 billion reflecting higher volumes.

The upshot is that higher import bills mainly reflect higher unit costs rather than higher volumes, with many regions or country groups set to face higher bills in return for lower or the same volumes, it added.

Worryingly, said the report, this development is much more pronounced for some economically vulnerable country groups.

Sub-Saharan Africa, for instance, is expected to spend USD 4.8 billion more on food imports but to see a decline in volumes worth USD 0.7 billion, it added.

Similarly, least developed countries (LDCs) are expected to see an expansion in their food import bill by USD 4.9 billion, fully on account of higher prices, said FAO.

As for net food-importing developing countries (NFIDCs), they are forecast to face USD 21.7 billion in extra costs for merely USD 4 billion of extra imported food volumes, it added.

The aggregate food import bill for LICs is expected to remain unchanged in value terms but could shrink by as much as 10 percent in volume terms, highlighting growing accessibility issues for such countries, said the report.

“These are alarming signs from a food security perspective, indicating importers are finding it difficult to finance rising international costs, potentially heralding an end of their resilience to higher international prices,” it added.

From a food group perspective, existing differences across importing regions are likely to become more pronounced in 2022, the report cautioned.

“While high-income countries continue purchasing across the entire spectrum of food products, the expenditures of developing regions will be increasingly concentrated on importing staple foods.”

Unsurprisingly, it said, the share of imported staple foods in the total food import bill (FIB) rises with lower income levels; staple foods account for 19, 37, 43 and 46 percent of the total FIBs for HICs, UMICs, lower-middle-income countries (LMICs) and LICs, respectively.

Overall, 2022 may usher in an era of less resilience to higher food prices, notably in poorer regions, said FAO.

In response to these developments, FAO said that it has proposed a Food Import Financing Facility (FIFF), which would provide balance-of-payments support to low-income, highly food import-dependent countries to ease their access to international food markets.

AGRICULTURAL INPUT IMPORT BILL

The FAO report also assessed global expenditures on imported agricultural inputs, including fertilizers.

Higher international prices of most agricultural inputs could lift global expenditures on imported inputs to USD 424 billion in 2022, leaving a heavy burden on lower-income countries, it said.

The world agricultural input import bill (IIB) is forecast to reach a total of USD 424 billion in 2022, representing a leap of 48 percent or USD 138 billion over the total reached in 2021, said FAO.

Relative to 2020, the 2022 IIB is projected to rise by as much as 112 percent, albeit from a depressed level of USD 200 billion, owing to lower overall imports during the near ubiquitous trade contractions caused by the COVID-19 pandemic, it added.

“Higher bills for imported inputs now add to rising food import bills for many low-income countries and, together with a rising US dollar exchange rate, further aggravate existing balance of payments problems,” said the report.

Higher costs for imported energy and fertilizer are the main drivers behind the soaring global IIB in 2022, FAO said.

“These two inputs accounted for well over 75 percent of the overall world bill in the past and are likely to reach a new record of 86 percent in 2022.”

Fertilizer and energy are particularly important items in the import bills of low-income countries (LICs) and lower middle-income countries (LMICs), accounting for 92 and 91 percent of total imported inputs, respectively, said the FAO.

The report said that saddled with higher costs of fertilizer and energy imports, these countries may be forced to cut down on the use of imported inputs, and, where domestic substitutes are not available, will eventually reduce input applications overall.

“Reduced use of inputs would almost inevitably result in lower agricultural productivity, potentially resulting in lower domestic food availability,” it added.

The decomposition of changes in the IIB between 2022 and 2021 shows that price effects dominate volume effects at the global level, meaning that countries around the world are encumbered with higher costs for imported inputs without necessarily receiving higher quantities – they pay more for imported inputs in 2022 while receiving lower volumes than in 2021, said the report.

It said that while this is a near ubiquitous development, the price effect is less pronounced for LICs, where higher prices account for “only” 67 percent of the respective overall increase in their IIB.

This could signal the beginning of a more general slowdown in the demand for imported agricultural inputs, it said.

Pesticides are an exception, especially in sub-Saharan Africa, where volume effects invariably outweigh price effects, indicating that countries are getting more of the input at the same price, said the report.

For sub-Saharan Africa, a plausible explanation for the buck in trend is the upsurge of desert locusts, resulting in international purchases of subsidized pesticides, it added.

However, FAO said that no discernible global trend emerges for seeds, which constitute a minor cost in the import schedule of many countries.

Energy, in the form of natural gas, is a key feedstock in the production of nitrogenous (N) fertilizer, where soaring gas costs have driven up the N fertilizer prices in the first semester of 2022 by more than 300 percent relative to the levels that prevailed in 2020, it added.

FAO said that with high and inelastic demand for natural gas and little prospects for abating supply shortages, high world fertilizer prices are likely to extend into 2023, with negative repercussions for global agricultural output and food security.