• FAO Food Price Index unchanged in September

• Global rice price hit 15-year high in September

• Higher rice prices may trigger another global wave of food anxiety

• Local rice prices have been trending higher

• Food inflation remain tilted to the upside

• Remain watchful on the movement of commodity and food prices

Headline inflation rate maintained at +2.0% YoY in August 2023, a 2-year low. Despite the higher base effect from August 2022, the positive growth was primarily driven by sustained foods inflation, and higher services demand domestically. The higher cost pressure of food production and services segment continued to drive up Malaysia's overall inflation in August. Food inflation recorded a 4.1% YoY increase – of the 230 food items, 185 items or 80.4% recorded price increases as compared to August 2022. The monthly headline inflation in August increased marginally to 0.2% as against 0.1% in July. Year-to-date (YTD) as of August, headline inflation averaged 2.9% (Jan-Aug 2022: +3.0%). Headline inflation rate ex-fuel prices slowed to +2.4% YoY (Jul: +2.5%). Core inflation rate eased for a ninth straight month to 2.5% YoY after moderating by 0.3ppts in August versus +2.8% YoY in July. This marks the lowest level since May 2022, but it still surpassed the overall national inflation rate (2.0%). YTD core inflation to an average of 3.4% in the first eight months of 2023 (Jan-Aug 2022: +2.5%). Services inflation tracked the downtrend in core inflation, easing for the ninth consecutive month to 2.7% from +2.9% in July.

Food inflation recorded slowest gain in 2023. The index for Food & Non-Alcoholic Beverages (FNAB), which contributes 29.5% of CPI weight eased to a 14-month low to 4.1% YoY (vs 4.4% YoY in July). The increase in this group was in tandem with slower increase in the components of food at home and food away from home. These components increased by 2.9% YoY (July: 3.0% YoY) and 5.9% YoY (July: 6.2%) respectively. All subgroups in Food & Non-Alcoholic Beverages recorded increases ranging from 1.5% to 5.8%, with Oils & Fats and Vegetables being the only components that recorded a price decrease in August, declining to -1.4% YoY and - 1.1% YoY, respectively
 

FAO Food Price Index unchanged in September. According to the Food and Agriculture Organization (FAO) of the United Nations, global food inflation continued to decrease, showing a -2.6% YoY decline in August 2023, compared to a 2.1% decline in July 2023. Meanwhile, FAO’s September report showed that the overall measure of international food commodity prices was broadly stable in September, with declines in quotations for vegetable oils, dairy and meat offset by a notable increase in those for sugar and maize. The FAO Food Price Index, which tracks monthly changes in the international prices of globally-traded food commodities, averaged 121.5 points in September, compared to 121.4 points in August. The September figure was 10.7% down year-on-year and 24% below an all-time high reached in March 2022 in the wake of Russia’s invasion of Ukraine.

Global rice price hit 15-year high in September. Global rice price maintained a 15-year high in September though average price showed an insignificant plunge. The FAO All Rice Price Index averaged 141.7 points in September 2023, though down 0.5% MoM, but still 27.8% above its year-earlier level. The marginal September decline of the Index was the result of easing Japonica and Aromatic prices, 11.0% and 1.6% below their respective August levels, weighed by harvest progress and poor demand. But Indica prices remained broadly steady at the 15-year highs they reached in August. The rise in export prices of Indica rice were confined to India in September, where parboiled quotations rose by 12.5% MoM in response to the Indian government's late August imposition of a 20% export duty on such quality.

Rice to get costlier due to weather, supply disruptions. Global rice prices have abruptly shot up, raising concerns about food shortages around the world. The surging prices were triggered by India, the world's largest rice exporter, which banned export of its crop amid increasing demand for rice as an alternative to wheat. Global rice prices, now at their highest in 15 years, are set to rally further after India’s move, just as El Nino threatens yields in key producers and alternative staples get costlier.

India is a major rice exporting country that supplies about 40% of rice traded on the international market. In 2022, it exported 22.12mn tons of rice, which was larger than the combined total of the 7.68mn tons exported by Thailand and 7.05mn tons by Vietnam, the second and third largest exporters, respectively. The international rice market is classified as a "thin" market. The volume of exported rice represents only 11% of global production compared with the figure for wheat at 27%. Many countries’ rice production can satisfy demand at home. For example, Japan meets nearly 100% of its own rice requirements through domestic production, making it generally immune to fluctuations in the international market.

Rice is a staple for more than three billion people and nearly 90% of the crop is produced in Asia, where the El Nino weather pattern usually brings lower rainfall. Yet even before the weather phenomenon can disrupt production, the global rice price index of the FAO hovers above 15-year high. There are concerns over tight supplies following the arrival of the El Nino phenomenon. The impact of El Nino is not restricted to any single country. It affects rice output in almost all producing countries and countries responsible for global rice cultivation are grappling with unpredictable weather patterns that threaten the supply of rice. India, the world's largest rice exporter, imposed an export ban on non-basmati white rice due to crop damage caused by heavy rains, and the ripple effects have been widely felt. Indonesia is already suffering under the effects of El Nino, which has been prolonging the dry season. Meanwhile, the Agricultural Economics Office of the Agriculture and Cooperatives Ministry in Thailand has forecasted a decline in rice production for the country’s 2023-24 harvest season, primarily due to the effects of the El Niño weather phenomenon.

Source: BIMB Securities Research - 13 Oct 2023