[Inflation Hits the Table] ④Record Heatwaves Raise Fears of Soaring Food Prices in the Second Half

WB: Food Prices Expected to Surge Much More Sharply This Year

Key Imported Raw Materials for Domestic Food Companies—Wheat, Soybeans, and Others—

Have Experienced Volatile Swings Over the Past Five Years Due to War and Climate Impacts

"Risks are piling up this year, threatening the global food market." - World Bank (WB)

Concerns about a sharp rise in food prices in the second half of this year are growing. Following the Iran war that swept through the first half, there are now projections that the potential occurrence of a 'super El Nino' and related natural disasters could drive up international food prices due to compounded risks. The spike in oil prices caused by the war has led to higher costs for raw materials such as energy, fertilizers, and packaging materials. Additionally, the effects of heavy rains and droughts are expected to inevitably result in price shocks for food ingredients like wheat, cocoa, and soybean oil due to decreased production.

According to an analysis by The Asia Business Daily on June 24, which examined the price trends over the past five years for six major agricultural commodities—wheat, soybeans, corn, butter, cocoa, and coffee—widely imported by domestic food manufacturers, prices have shown significant fluctuations. This has been attributed to the combined impact of short-term shocks like war and supply reductions due to climate change, such as droughts and heavy rains.

Reuters Yonhap News

Wheat Prices Stable After Ukraine War... Now Surging Again

Wheat, the raw material for flour, is used in bread, ramen, confectionery, and sauces, meaning an increase in international wheat prices immediately impacts the production costs of food manufacturers. The July wheat futures price on the Chicago Board of Trade (CBOT) stood at $597.5 per bushel on June 22, up 13.2% compared to the end of last year. Wheat prices shot up from $702.34 in 2021 to $899.85 in 2022, before gradually declining to $532.64 last year. However, prices are rebounding again this year.

In February 2022, Russia invaded Ukraine, one of the world’s leading wheat producers, severely impacting the wheat market. On top of this, extreme heatwaves further fueled the surge in wheat prices. At that time, India, the third-largest wheat producer, experienced its worst heatwave in 120 years, causing a drastic drop in wheat harvests and prompting the government to ban wheat exports entirely to meet domestic demand. That same year, droughts and heatwaves in the United States and Europe further reduced wheat supply, driving prices up even more sharply.

The prices of soybeans, a key ingredient in edible oil, and corn, used to produce starch and high-fructose syrup, have also experienced repeated ups and downs due to war and heatwaves. On June 22, soybeans traded at $1,115.75 per bushel, up 3.6% from the end of last year. Corn stood at $411.5 on the same day, down 6.5% compared to the end of last year. In 2022, the prices of soybeans and corn soared by 13% and 19% year-on-year, respectively. That year, the South American region—including Brazil and Argentina—was hit by a record-breaking La Nina, causing production to plummet, while the war drove up oil prices, increasing demand for biofuels and adding to price volatility.

Butter, cocoa, and coffee have also maintained high prices from 2022 to 2024, as war and climate issues occurred simultaneously. Notably, cocoa, which maintained a price of about $2,000 per ton until 2022, soared nearly sixfold to surpass $12,000 per ton by the end of 2024. Repeated heavy rains and droughts in major producing countries have disrupted production of cocoa, butter, and coffee, leading to price spikes.

If International Prices Rise, Domestic Food Prices Follow with a Time Lag

Historically, changes in international food prices have fed through to increases in domestic food and dining prices. For example, in 2022, when international food prices soared, Ottogi and CJ CheilJedang raised the prices of cooking oil by around 20%. That same year, Nongshim started by raising the shipment price of Shin Ramyun and other ramen by an average of 11.3%, followed by Ottogi, Samyang Foods, and Paldo, which also raised ramen prices. The prices of snacks such as Saewookkang also increased.

In 2023, prices of ice cream products rose, and in 2024, the upward pressure on cocoa prices led Lotte Wellfood, Orion, and Haitai Confectionery & Foods to increase snack prices. At that time, Ghana Mild Chocolate rose from 2,800 won to 3,400 won, and Choco Pepero increased from 1,800 won to 2,000 won. In response to higher coffee prices, Dong Suh Foods also raised the shipment prices of its instant coffee brands Maxim and KANU, as well as coffee mixes and beverages, by an average of 8.9%.

According to a 2023 report by the Bank of Korea, "After El Nino periods, there has been a tendency for international food prices to rise," adding, "International food prices are transmitted to domestic processed food and dining prices with a time lag." The Bank of Korea analyzed that a 1-degree Celsius increase in sea surface temperature compared to the annual average leads to a 5-7% rise in international food prices on average, with a time lag of 1-2 years. It also found that domestic processed food prices are affected after 11 months and dining prices after 8 months. As of May this year, the food price index within the Consumer Price Index stood at 126.79, up 20.6% compared to five years ago.

Lim Jeongbin, Professor of Agricultural and Resource Economics at Seoul National University, stated, "A peace agreement in the Iran war could be a factor for price decline, but the increasing frequency of natural and agricultural disasters due to the climate crisis will have a much greater impact on (food) prices by reducing production and supply." He added, "The rise in the exchange rate is also a factor contributing to higher food prices." He emphasized the need to "establish policies to enhance domestic production capacity and strengthen management safety nets to ensure farmers can maintain sustainable production" to prepare for these potential increases in food prices.

In the First Half, War; In the Second Half, Heatwaves... Fears of a Compound Crisis

WB also recently announced that this year’s global food price growth rate is expected to far exceed the initial forecast of 2.5%. At the beginning of the year, food prices were expected to be stable, as supply of grains and oils exceeded demand. However, the outbreak of the Middle East crisis in February caused a steep rise in energy and fertilizer prices. At the same time, a 'super El Nino' is expected to occur in the second half. If heatwaves, heavy rains, and droughts continue, agricultural production will be hit, leading to a surge in prices.

WB stated, "Multiple factors are combining, and we expect food prices to rise much more than previously forecast," adding, "Governments are likely to strengthen inward-focused policies by increasing energy and food self-sufficiency and securing strategic reserves."

According to international media outlets such as Newsweek, the El Nino phenomenon of 1997–1998 is estimated to have reduced global economic output by $5.7 trillion (about 8,762 trillion won). WB also estimates that the large-scale El Nino in 2016 resulted in agricultural production losses of $327 million.

Experts are concerned that, following the surge in energy and fertilizer prices caused by the Iran war, the likelihood of a super El Nino occurring is increasing. Chris Zacharini, Senior Analyst at the Energy & Climate Intelligence Unit (ECIU) in the UK, told CNBC, "This year will be a year when the Iran war and the climate crisis cause tremendous costs," predicting, "El Nino generally puts upward pressure on the prices of cocoa, edible oil, rice, and sugar."

This content was produced with the assistance of AI translation services.