Higher energy prices and the La Niña weather phenomenon could cause food prices to go up this year until next year, according to the World Bank.
The World Bank expects energy prices to decline 16.4 percent this year before increasing 22.2 percent next year, while nonenergy prices are seen to decline 4.1 percent this year and grow 2.1 percent next year.
The Philippines is a net importer of oil, and food makes up a third of the country’s basket of goods. For the poorest 30 percent, food accounts for as much as 70 percent of their market basket.
“The forecast for food prices is subject to a number of short- and long-term risks. Most important among these are the evolution of energy prices, weather patterns [especially the possibility of a La Niña episode later in the season], trade policies aimed at supporting commodity producers, and biofuel policies,” World Bank said.
The World Bank said agricultural commodities, particularly grains such as rice, are affected by energy prices through fuel costs, as well as chemicals and fertilizers.
It said energy constitutes more than 10 percent of the cost of agricultural production—four to five times the energy intensity of manufacturing.
“The transmission elasticity from energy to food commodity prices is about 0.20 over the long term, implying that a 50-percent reduction of energy prices is associated with a 10-percent decline in food prices,” the World Bank said.
Meanwhile, the report stated the La Niña—a cooling of the equatorial Pacific Ocean—is one of the key upside risks for agricultural commodity prices this year and next year.
World Bank said as the El Niño has reached its “neutral stage,” the US National Oceanic and Atmospheric Administration Climate Prediction Center said there is a 55-percent to 60-percent probability of a La Niña this month. This, however, was lower than the 75 percent the center forecasted in June.
In June the National Economic and Development Authority (Neda) already warned that Filipinos must brace for higher commodity prices in the second half of 2016 due to the enduring effects of El Niño and occurrence of La Niña.
The Neda said inflation may reach the low end of the Development Budget Coordination Committee’s target of 2 percent to 4 percent by year-end.
In May inflation reached 1.6 percent, which is the highest rate recorded in 12 months. In the first five months of the year, inflation averaged 1.3 percent.
“The main long-term upside risk is increased use of agricultural commodity support policies. Upside or down-side risks could also stem from energy prices, given the energy-intensive nature of agriculture, as well as biofuel policies,” the World Bank added.
The World Bank raised its 2016 forecast for crude oil prices to $43 per barrel, from $41 per barrel, due to supply outages and robust demand in the second quarter.
Oil prices jumped 37 percent in the second quarter of 2016 due to disruptions to supply, particularly wildfires in Canada and sabotage of oil infrastructure in Nigeria.
The revised forecast appears in the World Bank’s latest Commodities Markets Outlook, and takes into account a recent softening of demand and the recovery of some disrupted supply.
Despite the recovery of oil and many other commodity prices in the second quarter of 2016, most commodity indexes tracked by the World Bank are expected to decline this year.
This trend is due to persistently elevated supplies, and in the case of industrial commodities—which include energy, metals and agricultural raw materials weak growth prospects in emerging market and developing economies.