UK farmers and consumers face “a year of anxiety” in 2018 because of their exposure to potential global food price rises, according to analysis from Rabobank.
The bank has published its annual Outlook report, which highlights that world food prices could spike next year because of fluctuating currencies and the threat of disruption from a La Niña weather event.
The UK would be particularly exposed to these risks because of rising inflation and uncertainty over future trade deals post Brexit, it warns.
Inflation in the UK, as measured by the Consumer Prices Index, is currently at 3% – its highest level for five-and-a-half years.
Stefan Vogel, head of agri commodity markets at Rabobank and report co-author, 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 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.
“This means that 2018 looks like being a year of anxiety for UK farmers and consumers alike.”
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 75%.
The phenomenon typically brings extreme heat and dryness to grain-growing areas and flooding to Asia’s palm oil plantations.
If it does prove to be an issue, UK consumers could see food prices rise further as key commodities such as sugar, cocoa, coffee and wheat become even more expensive to import.
Rabobank’s report, Good Buy, Low Prices, also warns that global freight charges and oil prices are on the rise, which will be another factor in global price volatility and changes to trade flows.
Additionally, the prospect of further interest rate increases in the USA means the dollar could appreciate, making American exports of key commodities such as wheat and soya beans less competitive.
The report says its expectation for wheat is bullish relative to today’s prices due to an expected 7.5m-tonne global deficit (excluding China).
But it warns that British farmers are at risk of being frozen out of the lucrative EU market for grain.
“The UK exported about 1m tonnes of wheat to the EU last year along with about 0.7m tonnes of barley.
“But if Britain crashed out of the single market without a trade agreement, farmers would face a trade disadvantage.
“In a worst-case scenario, duties could reach almost €100/t on their exports to the EU – effectively making continued trade with the EU impossible.”