Cereal prices falling, now meat and dairy cause FAO concern
Inflated prices of commodities in 2008 caused disruption around the world. In developing countries higher-priced staples led to rioting and political instability, and in developed countries too food firms saw their margins pinched as passing on all the extra costs down the supply chain was not feasible.
The 2008 story is now understood to have been caused by several coinciding factors, including greater use of grains for biofuels in the face of high oil prices, poor harvests, market speculation, protectionism, and transportation costs.
One of the responses was to increase planting and production of food crops experiencing the most stress, and the latest edition of the FAO’s biannual Food Outlook report suggests this strategy has been successful.
"The 2008-2009 food prices boom spurred plantings and production of many crops, which has resulted in a recovery in inventories and boosting stocks-to-use ratios, a tendency likely to prevail also in 2010/11", it says. So far, cereal prices have come down about 10 per cent since January and they may drop further – especially as importing counties have been bolstering their home-grown capacity, as well as exporting countries.
Sugar prices, too, have taken a tumble since the beginning of this year, to around half their January level when they attained a 30-year high of $583/tonne.
The effect of cheaper cereals and sugar combined put the FAO’s food price index at an average of 164 points in May 2010, down from 174 points in January and “substantially less than its peak of 214 in the spring of 2008”.
But underneath what seems to be good news on the surface, the story is somewhat more complicated. The typical food commodity basket around the world is still 69 percent higher than it was in 2002-04 and imported food will be more costly than in 2009 ($921bn, down from $1921bn in 2009 and $1 trillion in 2008).
But non-cereal products are expected to rise by as much as 17 per cent, and to account for two-thirds of global import expenditures. These levels would be equal to or even over the levels seen in 2008.
Oil, milk, meat
Oilseed prices have not yet started to fall, but they may well do in the second half of the year. But with higher meat demand coinciding with production declines, prices have risen sharply.
Demand for milk imports is also strong and exporting countries are struggling to keep up, meaning international dairy prices are holding firm.
Similarly there is a revival in demand for fish, but it is in short supply. Atlantic salmon is commanding especially high tags at present due to disease issues amongst farmed salmon in Chile.
The FAO’s new Food Outlook report is available here.
