Key facts
- A record-strength El Niño is forecast to peak in late spring or summer.
- Experts warn this could lead to higher food prices in Australia over the next 12 months.
- Global wheat prices have increased by approximately one-third since early July.
- Brent crude oil prices have risen 35% since early July, impacting diesel costs for farmers.
- Disruptions in Black Sea grain exports are hindering global supply.
- The Reserve Bank of Australia is concerned about potential food price increases.
A severe El Niño weather event is predicted to increase food prices in Australia, potentially exacerbating existing inflationary pressures. The Bureau of Meteorology forecasts the event to peak in late spring or summer, with conditions expected to be hotter and drier in key agricultural regions of eastern Australia.
Michael Harvey, a consumer food analyst at Rabobank, stated that these weather conditions are a significant factor that will influence food pricing over the next year. The Food and Agricultural Organisation has also noted that weather-related threats are already contributing to high global commodity prices, increasing the risk of food inflation reaching consumers. While dairy and meat prices are showing signs of easing due to independent market shifts, other commodities face upward pressure.
Harvey highlighted that the impact on the winter wheat crop and subsequent effects on feed grains will be crucial to monitor, with the full consequences likely to be evident by the final quarter of the year. Global wheat prices have already seen a substantial increase of around one-third since early July, significantly outpacing the approximately 9% rise in Australian wheat prices. The surge in global oil benchmarks, with Brent crude exceeding $97 a barrel, is also driving up diesel prices, a key cost for farmers. Furthermore, fertiliser suppliers have warned of persistent supply disruptions contributing to structurally higher prices.
Adding to the supply chain concerns, Russia and Ukraine's significant grain harvests are facing difficulties reaching international markets due to attacks on Black Sea ports, resulting in a substantial portion of global grain exports being held up. These factors compound the existing cost-of-living crisis in Australia, where prices for staples like bread, cereals, and dairy have already risen between 28% and 30% in the five years to June.
Reserve Bank of Australia officials are monitoring the situation, concerned that a severe El Niño could further complicate efforts to control inflation and potentially necessitate further interest rate hikes. However, Jonathan Kearns, chief economist at Challenger, suggested that while El Niño is a factor, other costs such as labour, freight, and packaging often play a more dominant role in determining final consumer prices. He noted that food prices would be an unhelpful addition to inflation if they increased due to El Niño.