Over the past few years, food price inflation has been driven by a diverse set of factors, with their relative importance varying across regions and over time. As global markets emerged from the COVID-19 pandemic, the lifting of lockdowns and the reopening of businesses spurred a recovery in economic activity. A significant driver of this rebound was the implementation of large-scale fiscal support programmes across the world, which provided relief to households, while monetary policies remained rather liberal. This influx of financial assistance fuelled an unusually high demand for goods, contributing to a surge in inflation. In addition, the war in Ukraine affected agricultural and energy markets.34–40
The pandemic presented the world with unprecedented challenges, claiming almost 7 million lives,41 causing economic losses of about USD 13.8 trillion42 and pushing an additional 75 to 95 million people into extreme poverty.43 As the recovery process unfolded and a “new normal” emerged, a series of significant shocks affected the global economy. Together, these challenges (discussed below) have shaped recent trends in food insecurity and malnutrition worldwide: a sharp increase in the prevalence of undernourishment and moderate or severe food insecurity in the wake of the pandemic.
During and after the pandemic, governments around the world implemented unprecedented fiscal support measures to mitigate the economic downturn. These measures amounted to approximately USD 17 trillion, including financial assistance to households and firms.44 Global fiscal support in response to the pandemic provided between 2020 and 2021 was equivalent to 16 percent of the 2020 global gross domestic product (GDP) and exceeded the 2020 GDP of China or the European Union. High-income economies accounted for the majority of this spending, with the United States of America alone dedicating USD 6 trillion, leveraging its fiscal capacity to sustain economic activity and stabilize labour markets.44 Low-income countries and middle-income countries (MICs), while more constrained, also mobilized significant resources to support vulnerable populations and stimulate recovery (Figure 3.3). This massive injection of fiscal stimuli played a crucial role in cushioning the economic shocks of the pandemic, but it also contributed to increased demand, including in emerging and developing economies;45 in combination with supply chain disruptions, this fuelled inflationary pressures globally.40, 46
FIGURE 3.3 Fiscal responses to the COVID-19 pandemic
SOURCES: Data for fiscal response measure are based on IMF. 2021. Database of Fiscal Policy Responses to COVID-19: Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 Pandemic. [Accessed on 1 March 2025]. https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19; data for GDP per capita are based on World Bank. 2025. World Development Indicators. [Accessed on 1 March 2025]. https://databank.worldbank.org/source/world-development-indicators. Licence: CC-BY 4.0.
During and just after the pandemic, central banks around the world implemented a range of expansive monetary measures to support economic stability. These measures included significant interest rate cuts, quantitative easing programmes and emergency liquidity provisions to ensure financial system resilience. Major central banks, such as the US Federal Reserve, the European Central Bank (ECB) and the Bank of Japan, rapidly lowered policy rates to nearly zero and purchased large volumes of government and corporate bonds to inject liquidity into the economy.47 For instance, the ECB launched the pandemic emergency purchase programme in March 2020, initially allocating EUR 750 billion and later expanding it to EUR 1.85 trillion, to purchase private and public sector securities flexibly.48 Additionally, temporary regulatory adjustments were made to encourage bank lending. These supportive policies helped sustain credit flows, support business operations and mitigate the economic downturn. However, prolonged monetary expansion also set the stage for inflationary pressures as economies began to recover.49 As inflation began to surge, central banks started raising interest rates to control steep price increases.50 For example, the US Federal Reserve increased its interest rate by 0.25 percentage points in March 2022 and subsequently raised the rate 10 more times through July 2023.51
Exchange rates also played a role in determining food price inflation, especially in import-dependent economies. During the pandemic, many low- and middle-income countries experienced sharp currency depreciations due to capital outflows and increased demand for safe-haven currencies like the US dollar, Japanese yen and Swiss franc. By mid-2020, the currencies of nearly one-third of LICs and MICs had depreciated against the US dollar by more than 10 percent.52 This depreciation amplified food price inflation through the import price pass-through effect, with the impact being particularly severe in LICs.53 Additionally, as the United States of America tightened its monetary policy more aggressively than did many LICs and MICs in response to inflation in 2022, further currency depreciations in these latter economies intensified the inflationary pressures stemming from higher import costs.54
The US Federal Reserve’s increases in interest rates, alongside shifts in international energy markets, caused an appreciation of the US dollar, amplifying the effects of mounting global food prices. Rising energy prices boosted US export revenues, as foreign buyers converted their currencies into US dollars to pay for energy products, contributing to the appreciation of the US dollar. According to the United Nations Trade and Development Organization,55 during past global food crises, such as those in 2008 and 2012, the depreciation of the US dollar played a mitigating role by partially cushioning the impact of rising food prices. In contrast, the current food price inflationary episode has been characterized by a strengthening of the US dollar, creating a “double burden” for many countries (Box 3.3). This phenomenon has not only led to pure price increases but it has also imposed significant “exchange rate” effects on net food-importing countries, thereby exacerbating food prices.
BOX 3.3The interplay between exchange rate and local inflation
The dynamics of transmission of global food prices to domestic markets can take several forms and depend on several factors. A critical one is the misalignment between changes in exchange rates vis-à-vis domestic inflation, which can alter, exacerbate or prevent the transmission of global prices to domestic markets in real terms. In seamless and perfect markets, movements of the nominal exchange rate with respect to the US dollar should follow the relative inflation between the two countries. When local currencies weaken against the US dollar, consumers may not fully benefit from lower global food prices, as they need more local currency to buy the same amount of food from the international market. Conversely, high domestic inflation can make international prices seem lower in real terms, as the change in international food prices is smaller than the change in the overall domestic price level. However, high domestic inflation also erodes households’ purchasing power. In 2022, prices of most traded staple foods peaked in March before steadily declining until February 2024, according to FAO’s Food Price Index.56 Over the same period, the US dollar sharply appreciated with respect to many least developed country (LDC) currencies. And despite the reductions in global commodity prices, domestic food prices in several countries have remained high or even increased, revealing clear misalignments between international and local markets. To better understand the contribution of the exchange rate and domestic inflation to these misalignments, an analysis was conducted to convert global maize prices into real local currency terms for LDCs. The findings highlight how currency depreciation and domestic inflation altered the real price transmission across different economies (Figure A).*
Figure A The net effect of exchange rate movement and domestic inflation on maize prices across least developed countries
SOURCES: Authors’ (FAO) own elaboration based on data for CPI from World Bank. 2025. A Global Database of Inflation. In: World Bank. [Cited 8 May 2025]. https://www.worldbank.org/en/research/brief/inflation-database; data for exchange rate from IMF. 2025. IMF DATA: Exchange Rates (ER). [Accessed on 8 May 2025]. https://data.imf.org/en/datasets/IMF.STA:ER
In some countries (for example, Angola, Bangladesh, Lesotho, Malawi, Zambia), currency depreciation prevented consumers from fully benefiting from lower maize prices. In some cases, the impact exceeded 10 percent.
Other countries only had mild currency depreciations, and some did not experience any or had only slight appreciations against the US dollar, but did face increases in overall domestic inflation. This led to a decrease in the real price of maize, i.e. the ratio between its nominal value expressed in local currency and the domestic consumer price index. While this implies that food may have become more affordable than other products in the economy, consumers may have faced higher costs for other essential goods (such as housing, clothing and transportation) hindering their overall welfare.
Managing exchange rates and inflation effectively is crucial to ensuring that global food price changes are fully and fairly transmitted to local markets.
The world maize price is used as a case study. Relying on the purchasing power parity (PPP) theory, the conversion of the world maize price into real local currency terms follows:57
where WP refers to the world price of the selected commodity and LC to the local currency, R stands for real (inflation adjusted), N stands for nominal, NER represents the bilateral nominal exchange rate of a country with respect to the US dollar, while CPIUS/CPILC represents the ratio between the US CPI and a country CPI. Then, the formula is expressed in relative terms as follows:
where Δ denotes the difference operator and all the variables are expressed in logarithmic form.
In low- and middle-income economies, the depreciation of local currencies – driven by reduced inflows of foreign capital and downgrades of sovereign credit ratings – has contributed significantly to inflation, particularly with respect to imported goods. Notably, expectations of future inflation in these countries tend to be more responsive to currency fluctuations, meaning that any decline in currency value is swiftly reflected in higher prices for goods. Consequently, the interplay between currency depreciation and inflation poses severe challenges for these economies, further straining their ability to manage the costs of essential imports, including food.55 The different inflation patterns shown in Figure 3.2 in LICs and MICs have been driven by the interplay of these factors. In sub-Saharan Africa, high global food prices and national depreciations were the main drivers of inflation patterns, while in Latin America expansive monetary policies and increased aggregate demand played a major role. In addition, several countries showed a faster pass-through of prices than in previous episodes of high food prices.58
The war in Ukraine, amplified by multiple events, has unleashed a series of profound disruptions across global agricultural markets, including blockades of the main trading routes, generating uncertainty regarding harvest and trade. Both the Russian Federation and Ukraine play pivotal roles in global agricultural markets, particularly of wheat, maize, and sunflower oil, and they together supplied approximately 12 percent of the calories traded globally in 2021.59 Hostilities in the Black Sea region60 and disruption of Red Sea trade have unsettled the flow of agricultural exports from these and other countries, disproportionally affecting LICs and MICs that rely on cereal imports from global markets.61, 62 Although temporary measures, such as the Black Sea Grain Initiativek or the establishment of new Ukrainian trade routes, have mitigated some of the disruptions,65 the global food supply has become uncertain.
In addition to the disruption to agricultural commodity markets, there has been a major impact on fertilizer availability. Belarus and the Russian Federation – two important exporters of fertilizers – saw their exports significantly constrained due to economic sanctions imposed by the European Union, Canada and the United States of America, in addition to many other countries.l, 68, 69 In 2020, the Russian Federation accounted for 14 percent of globally traded urea and 11 percent of both monoammonium phosphate and diammonium phosphate – critical nitrogen- and phosphorus-based fertilizers – while Belarus and the Russian Federation jointly accounted for 41 percent of all globally traded muriate of potash. The disruptions led to soaring fertilizer prices, peaking in the spring of 2022 (see Section 4.1.3).
The war in Ukraine has also destabilized global energy markets, as at its outbreak the Russian Federation was the third and second largest global producer of oil and natural gas, respectively. The resulting turbulence in oil and gas markets has led to significant price increases and heightened volatility.70–72 While medium- and long-term strategies are expected to mitigate some of these effects,73 in the short term elevated energy prices have translated into increased production costs across many economic sectors, affecting also food production and transportation.
While global factors – such as high agricultural and energy prices, and monetary policy shifts – have been major drivers of recent food price inflation, localized shocks can also influence food prices at both national and global levels. Weather variability, climate extremes and natural disasters often disrupt agricultural production and agrifood systems, but their impact on food prices is mediated by a range of context-specific factors. For instance, weather shocks such as droughts can directly reduce food supply, whereas floods can suppress household incomes and reduce demand, partially or even fully offsetting the supply-side effects.m, n The impact of such shocks on food prices varies depending on the type of event (e.g. storms or droughts), the macroeconomic conditions at the time (e.g. recession or expansion), and the country’s fiscal capacity to cushion the shock.77
Recent examples underscore the diverse effects of weather shocks depending on the geographic scope and global significance of the affected region. For instance, in the period from 2018 to 2019, intense wet weather and cyclones across Eastern Africa and the Arabian Peninsula led to one of the worst locust outbreaks in decades. Though the damage to agriculture and food security was severe within the region,78 the impact on global food prices remained limited due to the region’s relatively small role in global food production. In contrast, La Niña-induced droughts between 2020 and 2023 in Argentina, a major wheat exporter, resulted in a 35 percent drop in wheat output and a dramatic fall in exports.79 This supply shortfall contributed to international wheat price spikes, compounding the inflationary pressures already caused by the war in Ukraine. This contrast illustrates that localized weather events may remain regionally contained or can trigger global price rises depending on the weight of the affected country in international food markets.
In addition to climate-related disruptions, biological shocks such as plant pests and animal diseases have emerged as potent inflationary forces in global food markets. The outbreak of African swine fever (ASF) in China in 2018 led to the slaughter of millions of pigs, decimating the domestic pork supply in the world’s largest pork-producing country. As pork prices in China surged by 97 percent in December 2019, they accounted for more than half of the 4.3 percent increase in the national consumer price index.80 The cost of the ASF outbreak is estimated at 0.78 percent of the country’s GDP in 2019.o, 81 To meet domestic demand, China dramatically increased pork imports, absorbing 45 percent of the global pork trade by 2020.82 This exerted upward pressure on international pork markets, which caused a 9 percent increase in global pork prices.83 This episode illustrates how localized disease outbreaks in key producing countries can amplify food price spikes well beyond national borders, reinforcing the importance of considering local shocks within the broader context of global price dynamics.p
3.2.1 What happened to consumer food prices?
Considering the drivers of aggregate inflation outlined above, the impact on food prices can be understood as a reflection of shifts in global agricultural commodity markets, energy shocks and broader macroeconomic factors. While many of the macroeconomic factors are discussed in Section 3.2, this section first explores the key drivers of agricultural and energy commodity price increases before moving on to a broader discussion of how these and other factors influenced food price inflation during 2021 to 2023.
What caused global agricultural commodity prices to increase?
Global agricultural and energy commodity prices have experienced significant volatility since 2020, driven by a complex interplay of demand- and supply-side shocks. Initially, the pandemic triggered a series of demand-side pressures, as expansive monetary policies and macroeconomic imbalances led to a surge in liquidity and speculation in commodity markets.87 However, as the world began to recover, supply-side disruptions – including geopolitical tensions and structural constraints – began to dominate, shifting the source of commodity price shocks and their transmission into consumer food price inflation.q
Agricultural commodity price dynamics between 2020 and 2022 were largely shaped by two waves of exogenous shocks. The first wave emerged early in the pandemic, as a result of fears about farm labour shortages and food supply disruptions, combined with precautionary trade restrictions and increased stockpiling. However, these pressures were initially tempered by reduced aggregate demand due to the collapse of economic activity. As recovery efforts took hold, food prices continued to rise, this time driven more by endogenous macroeconomic responses, including strengthened demand and improved financial conditions facilitated by loose monetary policy.
At the onset of the pandemic, there were concerns about farmers’ ability to harvest their crops, leading to fears of potential disruptions in agrifood systems. This placed upward pressure on global food prices of about 15 percentage points during the early months of 2020 (Figure 3.4A).89
The second wave of supply-side shocks stemmed from the outbreak of the war in Ukraine in early 2022, which had implications for global agrifood systems. The Russian Federation and Ukraine were major exporters of grains such as wheat and maize, and the conflict disrupted critical trade corridors in the Black Sea and Red Sea regions. These disruptions, coupled with substantial declines in fertilizer exports from the Russian Federation, exerted significant upward pressure on food input costs. These exogenous shocks added another 18 percentage points to global food commodity prices in 2022 (Figure 3.4A), marking a clear departure from purely macroeconomic-driven price fluctuations and reinforcing the structural vulnerability of food markets to geopolitical disruptions.89
FIGURE 3.4 The COVID-19 pandemic and the war in Ukraine contributed to commodity price fluctuations
SOURCE: Peersman, G. (forthcoming). Understanding the post-COVID-19 pandemic surge in food price inflation – Background paper for The State of Food Security and Nutrition in the World 2025. FAO Agricultural Development Economics Working Paper 25-06. Rome, FAO.
Energy price shocks also reinforced food price inflation, particularly as global energy markets were destabilized by the outbreak of the war in Ukraine. While energy prices fell during the initial pandemic recession, they rebounded sharply in 2021 and 2022 due mainly to shocks specific to energy markets, rather than to macroeconomic recovery. Sanctions against the Russian Federation, realignment of European energy imports, and broader supply chain disruptions contributed to prolonged upward pressure on oil and gas prices. Since energy is a key input in agricultural production – from fertilizer manufacturing through to transportation – these developments spilled over into agricultural commodity markets. By 2024 the energy price shocks had placed additional pressure on global food commodity prices (Figure 3.4B).
What caused food prices to increase?
Shocks in agricultural and energy commodity markets played an important role in the post-pandemic surge in global food prices. The timing and intensity of the shocks to commodities and energy prices varied across regions, but the combined effect was a sustained increase in consumer food prices. Despite food commodity prices beginning to decline in late 2022, the food CPI has remained elevated. This persistence is explained by delayed pass-through effects, sticky prices and the cumulative impact of multiple supply chain disruptions. In the euro area,r additional factors such as labour cost pressures and exchange rate depreciation have further amplified food price inflation, in contrast to the United States of America, where the impact has been more contained.89
Commodity prices – of both food and energy – have been key contributors to recent food price inflation, with exogenous supply-side shocks playing an increasingly prominent role in the post-pandemic era. The rapid increase in food and energy commodity prices after 2020 directly contributed to higher food price inflation. As a result, food prices in 2022 and 2023 rose well above their historical trend, with input cost shocks alone explaining a large share of the increase. At the inflation peak, the difference between the observed and the baseline inflation was 6.9 and 11.8 percentage points in the United States of America and the euro area, respectively. The pure effect of exogenous food shocks on food price inflation was small; its contribution explains 3 percent and 8 percent of the increase in food price inflation in the United States and the euro area, respectively. However, including the exogenous effects of energy shocks, those contributions increase to 14 percent and 18 percent, respectively (Figure 3.5 – green line).
FIGURE 3.5 Effects of commodity shocks on food price inflation were higher in the United States of America than in the euro area
SOURCE: Peersman, G. (forthcoming). Understanding the post-COVID-19 pandemic surge in food price inflation – Background paper for The State of Food Security and Nutrition in the World 2025. FAO Agricultural Development Economics Working Paper 25-06. Rome, FAO.
Broader macroeconomic conditions amplified the impact of commodity market developments on food price inflation. When additional pressures from broader macroeconomic developments were taken into account, such as commodity input costs for food producers and retailers, the estimated contribution of commodity price dynamics rises to 47 percent in the United States of America and 35 percent in the euro area at the inflation peak (in the United States the inflation peak was in the third quarter of 2022 and in the euro area it was in the first quarter of 2023) (Figure 3.5 – purple line). This represents the contributions of exogenous commodity market shocks and the indirect effects of other macroeconomic shocks through commodity markets, that is, insofar as these other shocks affected the commodity input costs of food producers and retailers. These figures underscore the significant pass-through of agricultural and energy commodity price increases to retail food prices during this period.
However, commodity-driven inflation does not fully explain the extent of the price pressures observed. Actual peaks in food price inflation reached 10.6 percent in the United States of America and 15.7 percent in the euro area, pointing to other contributing factors such as rising labour costs, exchange rate fluctuations and increases in profit margins along the supply chain.34, 37 In the United States, 53 percent of the increase was driven by markets unrelated to agricultural and energy commodities, compared to 65 percent in the euro area. While earlier inflation dynamics were shaped by pandemic-related demand shifts and policy responses, the more recent acceleration has been fuelled by geopolitical tensions and supply-side disruptions – most notably the war in Ukraine.
Rising concerns about market concentration and the exercise of market power have emerged as food prices remain elevated despite easing input costs. Policymakers increasingly point to dominant companies in the food supply chain as contributing to price stickiness and inflation persistence. The European Commission has criticized large food companies for using their bargaining power to suppress payments to farmers while raising consumer prices.91 In the United States of America, “greedflation”, implying that food suppliers and retailers exploit inflationary conditions to amplify profits, has been a subject of debate.92 The Australian Council of Trade Unions argues that high market concentration in the grocery retail sector enables a “rocket and feathers” pricing strategy, where prices rise quickly when costs increase but fall slowly when costs decline, reflecting limited competitive pressures.93
Market concentration is a systemic issue that undermines efficiency and affordability across the entire agrifood value chain, from inputs to processing and retail, affecting both developed and developing countries. In Mexico, the Federal Economic Competition Commission (COFECE) found that one dominant firm in the maize flour sector, critical for producing tortillas – a daily staple for nearly 70 percent of the population – exercised significant market power to raise prices, leading to preliminary sanctions. Similar dynamics are evident in agricultural input markets.94 A Common Market for Eastern and Southern Africa (COMESA) analysis of fertilizer imports in Southern and Eastern Africa revealed oligopolistic market structures, with only two to five firms dominating international sourcing.95 This lack of competition resulted in mark-ups exceeding 40 percent in 2023 and impeded the transmission of falling global prices to local markets.
Market power may distort the transmission of international price signals to domestic food markets, contributing to inflation persistence and asymmetries in price adjustment. Economic theory suggests that in oligopolistic markets, firms are reluctant to lower prices for fear of triggering price wars, leading to downward price rigidities.96 This behaviour can result in asymmetric price transmission: domestic food prices rise quickly in response to global commodity shocks but adjust slowly, or not at all, when international prices decline. Such patterns have been observed since 2022, when successive global shocks caused food price spikes, yet recent declines in commodity markets have not been fully reflected in consumer prices. Empirical studies from food-importing countries have linked these asymmetries to market concentration.97–99 However, the evidence remains mixed. For instance, Hernández et al. (p. 52)100 document that “the relationship between concentration and market power exertion is multifaceted, and the evidence supporting market power abuse or anticompetitive behaviour is not generally obvious and may be context-specific.”
3.2.2 Is the 2021–2023 food price inflation like past food price inflation episodes?
Food prices are inherently volatile, often driven by a combination of demand-side and supply-side shocks that shape historic inflation patterns. Understanding the difference between these two forces is crucial for grasping how food price inflation unfolds and how it affects economies. Demand-side shocks occur when there is a sudden and unexpected increase in consumer demand for food products. Supply-side shocks arise in response to disruptions in the production or distribution of food commodities.88, 101
Food price inflation can arise from both demand-side and supply-side shocks, but their origins and impacts on the economy are markedly different. Demand-side shocks result from factors such as economic expansion, income growth, or shifts in consumption patterns – like the surge in food-at-home demand during the pandemic.36, 102 These shocks typically lead to rapid price increases as more consumers compete for limited supplies. While demand-driven inflation can be significant, it often moderates as consumption patterns normalize or as supply catches up. In contrast, supply-side shocks are frequently caused by adverse weather events, geopolitical conflicts, or sharp increases in the cost of inputs such as energy and fertilizers. A prominent example is the war in Ukraine, which has significantly disrupted global supplies of grains and fertilizers, leading to a steep and prolonged rise in food prices.103, 104 Unlike demand-side shocks, which may have a more immediate but short-lived impact, supply-side shocks tend to create persistent inflationary pressures, as rebuilding production capacity and restoring supply chains can take considerable time.
Recognizing the difference between these types of shocks is essential for designing effective policy responses. Tackling demand-side shocks often involves measures like targeted social assistance to support vulnerable populations or temporary tax exemptions and price policies to curb excessive inflation. Addressing supply-side shocks, on the other hand, may require increasing domestic production, releasing strategic reserves or enhancing trade flexibility to compensate for supply disruptions. Policymakers must accurately diagnose the underlying causes of food price inflation to implement targeted and efficient responses, thereby mitigating the adverse impacts on food security and economic stability.
Historically, food price inflation has been predominantly driven by supply-side shocks, as evidenced in two recent major inflationary episodes. The surge in food prices in previous periods, such as the 2007 to 2008 and 2011 to 2012 crises, was largely attributed to unexpected disruptions in agricultural production, often triggered by adverse weather events, supply chain interruptions or global market shocks.105 This pattern reflects the inherent volatility of agricultural supply, which is highly susceptible to unexpected shortages or surpluses due to weather and trade policies, among other factors.
However, the most recent surge in food price inflation, beginning with the onset of the pandemic in early 2020, marked a departure from the typical pattern by being initially demand-driven. The pandemic-induced recession and subsequent economic recovery led to a sharp increase in consumer demand, particularly for local food, as mobility restrictions and health concerns shifted consumption patterns.106 This shift resulted in large year-on-year increases in food prices not seen since the 1970s, with demand-side shocks contributing over 5 percentage points of the inflation at its peak in the United States of America.105
As supply chain disruptions and geopolitical tensions, especially the war in Ukraine, unfolded, supply-side factors began to assert a more significant influence, prolonging inflationary pressures. Consequently, while demand-side shocks played a prominent initial role, the subsequent supply constraints compounded the situation, reflecting a complex interplay of demand- and supply-side dynamics in the most recent episode of food price inflation. The impact of supply-side shocks varies and tends to be greater in the euro area than in the United States of America.89, 106
