Food prices rising again, FAO warns

Food prices reached a peak in June 2008, causing serious food security concerns and rioting in some parts of the world. For the food industry, higher ingredient costs were passed along the food chain and had an impact on the bottom line of many businesses – not to mention end consumers’ grocery bills.

Today the UN’s Food and Agriculture Organization (FAO) has warned of the fourth consecutive rise in its monthly Food Price Index, a ‘food basket’ made up of cereals, oilseeds, dairy, meat and sugar.

In November, the index averaged 168 points – the highest month since September 2008. Before the 2007/8 price spike the index was below 100 points most of the time, and had never exceeded 120. However the November level was still 21 per cent below its highest point last June.

While the new trend will give some just cause for concern, and the FAO will be watching developments closely, it points out that the market conditions are quite different this time around.

Today’s market conditions reduce the risk of a major price surge in the next 6 months, according to Hafez Ghanem, assistant director-general of the FAO for social and economic development.

However the organisation says the “now entrenched susceptibility of the global food system to external non-food economy events requires continuous vigilance”. ​

Then and now​

A number of factors were identified as contributing to the start of the price rise in 2007: low cereal stock levels; crop failures in major exporting countries; and fast-growing demand for agricultural crops to make biofuel; and oil prices.

Others aggravated the problem, such as government-imposed export restrictions, the weak US dollar and speculation on the commodity markets.

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“What made the 2007/8 price spike exceptional was the concurrence of so many factors culminating in an unprecedented price rally and the fuelling of volatility,”​ said the FAO.

Ghanem said the current stock situation is “healthy”​ – although some markets are facing tight cereals conditions.

Generally speaking, exporters are holding more adequate supplies of cereals to meet rising demand than they were two years ago. Major wheat-exporting counties are tending to retain 20 per cent as stocks, rather than 12 per cent as before.

Production is also looking reasonable. The preliminary outlook for cereals does show a decline in world output compared to 2008, but it is still expected to be 4 per cent up on 2007.

A large South American oilseed crop is expected to weaken prices of meals and cakes, but oils and fats will remain tight. World sugar prices are expected to “remain firm, but at lower levels than the current highs”.​

Fish and other animals​

Meat prices were an average of 8 per cent lower in the first 10 months of 2009 than they were during the prior year period.

However dairy prices have gained 80 per cent since February, and the price of traded milk powders is rising the fastest. The FAO points out that that whether or not the EU opts to offload large stocks of butter and skimmed milk onto the world market will affect pricing.

As for fish, the global downturn has affected demand, and moderate price increases have been observed for several months.