Commodity prices to drop in 2020, concern remains about food security: WB
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January 31, 2023

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TUESDAY, JANUARY 31, 2023
Commodity prices to drop in 2020, concern remains about food security: WB

Coronavirus chronicle

TBS Report
24 April, 2020, 02:15 pm
Last modified: 24 April, 2020, 09:16 pm

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Commodity prices to drop in 2020, concern remains about food security: WB

Prices reached a historic low in April, with some benchmarks trading at negative levels

TBS Report
24 April, 2020, 02:15 pm
Last modified: 24 April, 2020, 09:16 pm
Commodity prices to drop in 2020, concern remains about food security: WB

The Covid-19 pandemic has driven most commodity prices down and is expected to result in substantially lower prices in 2020, the World Bank (WB) said in its April Commodity Markets Outlook report.

The report said most food markets are well supplied, yet concern with food security remains high as countries may impose trade restrictions and ban on exports of certain commodities due to uncertainty caused by the pandemic.

Amid this situation, the World Bank has joined other organisations in calling for collective action to keep food trade flows going between countries.

The report said monthly average crude oil prices plunged by 50 percent between January and March. Prices reached a historic low in April, with some benchmarks trading at negative levels. Declines reflect a sharp drop in demand and have been exacerbated by uncertainty around production levels among major oil producers.

Due to mitigation efforts that have limited most travel, oil demand is expected to fall by an unprecedented 9.3 million barrels per day this year from the 2019 level of 100 million barrels per day.

Oil prices are expected to average $35 per barrel in 2020, a sharp downward revision from the October forecast, and a 43 percent drop from the 2019 average of $61 per barrel.

Prices for natural rubber and platinum, both heavily used by the transportation industry, have also tumbled.

Overall energy prices – which also include natural gas and coal – are expected to average 40 percent lower in 2020 than last year, although a sizeable rebound is anticipated next year. Natural gas prices have fallen substantially this year, but coal prices have been less affected since demand for electricity has been less affected by mitigation measures.

A deceleration of economic growth in China – which accounts for half of the global metal demand – will weigh on industrial metal prices. Gold prices, on the other hand, have risen as buyers have sought safety amid turbulence in the financial market.

The report said agriculture prices are less tied to economic growth and have undergone only minor declines over the first months of the year – except rubber, which fell sharply, and rice, which rose due to worsening crop conditions and some trade restrictions.

Overall global agricultural prices are expected to remain broadly stable in 2020 as production levels and stocks of most staple foods are at record highs.

According to the report, the impact of the pandemic on commodity markets may result in longer-term changes. Transport costs may be higher due to additional border-crossing requirements.

Higher trade costs will in particular affect agriculture and food commodities and textiles. Decisions to stockpile certain commodities could affect trade flows and have an effect on global prices, according to the World Bank report.

Commodity-dependent emerging markets and developing economies will be among the most vulnerable to the economic impact of Covid-19. In addition to the health and human toll they face, and the effects of the global economic downturn, reduced demand for exports and disruption of supply chains will take a toll on the economies of these countries.

Ceyla Pazarbasioglu, World Bank Group Vice President, said that in addition to the devastating human toll, the economic impact of the pandemic will dampen demand and cause supply disruptions, negatively affecting developing countries that rely heavily on commodities.

"Policymakers can take advantage of lower oil prices by undertaking energy-subsidy reforms to help free spending on urgent pandemic-related purposes," she said, adding, "These reforms need to be complemented with stronger social safety nets to protect the most vulnerable segments of society.

"Policymakers must resist the urge to impose trade restrictions and actions that put food security at risk, as the poor would be hit the hardest."

Consumers in Bangladesh have already started feeling the pinch of the price hike of many household essentials due to supply system disruption – from ports to factory production, storehouses and distribution – ahead of Ramadan.

Prices of some commodities that witness hikes in demand during Ramadan have gone up 10 to 20 percent in the capital. But farmers in the countryside are not getting fair prices for their produce due to the lockdown and absence of transport.

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