Onome Amuge
Global food prices are proving resilient, hovering at more than two-year highs despite record cereal harvests and comfortable stockpiles. Analysts say the latest data underscores how structural forces, from biofuel policy shifts to protein demand in Asia and climate volatility, are reshaping the world’s food economy in ways that keep pressure on households and governments alike.
The UN Food and Agriculture Organization (FAO) said its benchmark Food Price Index averaged 130.1 points in August, little changed from July but 6.9 per cent higher than a year earlier. The index, which tracks monthly changes in the international prices of cereals, dairy, meat, vegetable oils and sugar, remains 18.8 per cent below the peak reached in March 2022 after Russia’s invasion of Ukraine, but is now at its highest since February 2023.
The record supply alongside sticky prices is feeding growing concern among policymakers and investors.
“On paper, the world should be awash with grain. But food markets are not behaving like classical supply-and-demand curves anymore. Energy policies, geopolitics, and climate stress are distorting flows and costs. That’s why we’re seeing such stickiness at a relatively high level,” said Carlos Mendez, senior agricultural strategist at Rabobank.
The FAO’s vegetable oil sub-index rose 1.4 per cent in August, reaching its highest in over three years. Palm, sunflower and rapeseed oils led the gains, driven partly by Indonesia’s decision to raise the palm oil content in biodiesel, a policy aimed at reducing reliance on imported fossil fuels.
For commodity traders, the development is another reminder of how closely energy markets and food markets are now entwined. “Biofuel mandates are quietly turning into one of the most powerful demand drivers in agricultural commodities. Every litre diverted to a fuel tank is a litre not going into the food system. And with governments prioritising energy security, this trend is unlikely to reverse,” said Jennifer Li, senior economist at Fitch Solutions.
Soy oil was the exception, edging lower on expectations of ample supply, particularly from the Americas. But analysts warn that even soybean oil could rebound if South American weather proves disruptive later in the planting season.
If oils are being reshaped by policy, meat prices are being propelled by consumption shifts. The FAO’s meat index rose 0.6 per cent in August, hitting a new record high. Beef demand in the US and China drove the increase, with lamb prices also climbing on tighter supply from Oceania. Pork remained steady, while poultry fell on abundant Brazilian exports.
“China’s appetite for protein is insatiable. Even when consumers elsewhere are cutting back, Chinese and US demand is enough to hold the market at elevated levels,” said Michael O’Neill, global protein analyst at StoneX.
For producers, the higher prices reflect structural tightness. Beef herds in the US have shrunk due to drought conditions, constraining supply. In Oceania, climatic conditions have tightened lamb exports. And even with poultry surpluses from Brazil, the overall protein complex remains expensive.
“This is not a temporary blip. The global protein balance is shifting permanently upward,” O’Neill added.
By contrast, cereals dragged on the index for a fifth consecutive month. Prices fell 0.8 per cent in August, as bumper harvests in Russia and the EU weighed on wheat. Rice prices softened, pressured by India’s rupee weakness and competition among exporters. Maize bucked the trend, gaining on US demand for animal feed and ethanol.
The FAO forecasts global cereal production at a record 2.961 billion tonnes in 2025, up 3.5 per cent year on year. Stocks are expected to rise to a record 898.7 million tonnes by 2026, giving a comfortable supply-to-use ratio of more than 30 per cent.
Yet even here, analysts note, the supply story does not translate to lower costs for all. “It’s not just how much grain is produced — it’s where it’s produced, who controls it, and in what currency it’s traded. Russia’s dominant position in wheat, India’s interventions in rice, and a strong US dollar all complicate the picture,” said David George, commodities research head at ING.
Sugar prices ticked up 0.2 per cent after five months of decline. Traders cited worries over Brazilian cane yields, with drought conditions threatening output, alongside strong demand in Asia. Improved crop prospects in India and Thailand contained the gains, but analysts expect sugar markets to remain volatile.
“The world is overly dependent on Brazil for sugar. Any hint of weather disruption there ripples globally. The current firmness in prices reflects that structural fragility,” said Aditi Sharma, soft commodities analyst at Société Générale.
Dairy was the other weak spot, with the sub-index falling 1.3 per cent as butter, cheese and whole milk powder prices slid. Subdued demand from Asian importers, particularly China, weighed on markets.
But here too, analysts warn against assuming a prolonged decline. “China’s imports are cyclical, not structural. If Beijing rolls out stimulus and consumption rebounds, dairy prices could snap back,” said Li of Fitch Solutions.
The persistence of high food prices despite abundant supply reflects several converging dynamics, according to analysts. The diversion of vegetable oils and maize to biofuels has created a structural demand floor, insulating prices from the usual cycles of oversupply. Rising incomes in emerging markets, particularly in Asia, are fuelling permanent increases in demand for meat and dairy. Export restrictions, sanctions and currency fluctuations are distorting trade flows, weakening the transmission of global abundance into local affordability. Even with record harvests, the fear of weather shocks keeps markets risk-premised, as shown by Brazil’s sugarcane sector. At the same time, governments are increasingly active in food markets, from India’s rice export decisions to Indonesia’s biodiesel mandates, creating additional volatility.
For central banks in emerging markets, elevated food prices complicate monetary policy. Food accounts for up to 50 per cent of household consumption in parts of Africa and South Asia, magnifying the inflationary impact.
“Food inflation is the most politically sensitive form of inflation.It affects the poorest households disproportionately, and it can quickly morph into social instability,” said George of ING.
The IMF recently warned that high global food costs remain a flashpoint risk for developing economies, even as headline inflation eases in advanced markets.
Investors eye agricultural commodities
Commodity investors are paying close attention. Funds tracking agricultural benchmarks have seen renewed inflows in recent months, as investors bet that food prices will remain supported by structural factors.
“Food is becoming investable again. The combination of climate volatility, biofuel policy and geopolitical friction means agriculture is not just about supply and demand — it’s about resilience. And resilience commands a premium,” said Mendez of Rabobank.
Looking ahead, analysts expect the FAO index to remain in the 120–135 range through early 2026. Much will depend on weather patterns in South America, policy decisions in Asia, and the trajectory of global demand.
For consumers, the uncomfortable reality is that even record harvests may not deliver relief at the checkout. For policymakers, the challenge will be to balance food security with other priorities , from energy transition to climate adaptation.
“We are not in a crisis like 2022. But we are in a new normal. Food prices will stay higher for longer, shaped by forces outside the farm gate. That is the lesson of the FAO’s latest numbers,” noted Sharma of Société Générale.
