UK faces food price inflation due to La Niña and Brexit: Rabobank
The La Niña weather event could impede production of key commodities, including cocoa and coffee, leading to further food price inflation in the UK next year, according to Rabobank. The UK is particularly exposed to the impact of the event due to Brexit uncertainty. La Niña results from the cooling of the tropical Pacific Ocean and could affect regions from grain fields in the Americas to Asian palm oil plantations. Rabobank said that weather events pose “significant threats on the horizon to global food prices in 2018”.
 

UK consumers could be hit by a new bout of food price inflation next year after the return of the La Niña global weather phenomenon, which may hit production of key commodities including coffee and cocoa.

The UK is expected to be particularly exposed to the effect of the event, which tends to prompt dry weather in the US midwest and heavy rainfall in south-east Asia and Australia, because of the uncertainty caused by Brexit.

Stefan Vogel, head of agri commodity markets at Rabobank, predicted a “year of anxiety for UK farmers and consumers”.

Vogel said: “We see significant threats on the horizon to global food prices in 2018, which have been relatively stable or even trending lower for a number of years.

“Chief among them is the potential of La Niña, a weather event caused by the cooling of the tropical Pacific Ocean that could affect areas ranging from grain fields in the Americas to palm oil plantations in Asia.

“Unfortunately, the current high-inflation environment in the UK makes it disproportionately exposed to any significant movement in food prices, while the uncertainty over trade deals when Britain leaves the EU exacerbates the situation further.”

According to the US-based National Oceanic and Atmospheric Administration, the chance of La Niña conditions strengthening and lasting over the northern hemisphere winter is currently between 65% and 75%.

The UK’s Met Office has also warned of an “increasing risk” of a La Nina event this winter, bringing a cold snap to the UK.

It says it is unlikely there will be a major La Niña event, as experienced between 2010 and 2012, when severe droughts in key growing areas including the US midwest devastated crops while excessive rains in Columbia led to the spreading of a deadly coffee fungus.

In its outlook report for 2018, Good Buy, Low Prices, Rabobank’s analysts predict that La Niña is likely to prompt volatile prices for commodities – ranging from palm oil in south-east Asia, where above-average rainfall and isolated flooding can take place, to crops in parts of Argentina, Peru, southern Brazil and the US that might be affected by drought or low rainfall.

Jara Zicha, a commodities analyst at Mintec, said the effects of a La Niña and its stronger brother El Niño were hard to predict. A change in the weather could also be beneficial to some crops.

Two years ago, one of the strongest El Niños on record brought rain to drought-stricken California helping fruit and nut farmers in the region, for example. “What is important is how strong La Niña is,” Zicha said.

But he added: “This just adds another level of uncertainty. The UK already has very weak sterling making prices expensive and we are slowly starting to see those now. Going forward, Brexit is another uncertainty and La Nina is another factor the UK has to deal with.”

Rising crude oil prices and global freight costs as well as the potential imposition of new tariffs on the import of goods once the UK leaves the EU, could all add to price rises according to Rabobank.

Further price rises would come on top of increases in the price of fish, fats and vegetables which have driven food price inflation to the highest level in more than four years.

City analysts and some retailers had predicted that the big drop in the value of the pound since the Brexit vote in June 2016 would cease to have a strong upward effect on prices by the end of this year. But Rabobank’s analysts suggest otherwise.

“Alongside weather, the rising cost of global trade and potential currency fluctuations also create upside risks for food prices,” Vogel said. “Our view is these outweigh the downside risks in 2018. Food and agribusinesses must therefore plan ahead to manage these risks proactively and appropriately.”