SANTA MONICA, Calif. — With global harvests forecasted to be more bountiful than expected, food prices fell to a six-month low in July. The prices of wheat, vegetable oils, corn and soybeans have even dropped to their lowest since 2010. And while meat prices rise and sugar prices remain stable, steep price reductions of cereals, oils and dairy continue to drive overall food prices down.
The Drop in global food prices is quantified by the United Nations Food and Agricultural Organization’s (FAO) food price index. The food price index measures the monthly price changes for a hypothetical basket of food commodities composed of five major groups: cereals, vegetable oil, dairy, meat and sugar. The July index was down 3.5 points from the year before.
“This year we feel we are in a rather comfortable situation,” said Concepcion Cale, a senior economist at the U.N. FAO. “We are approaching the harvest period so the danger of having further setbacks is much less.” Prompted by the declining FAO price index values, the U.N. even raised its predictions for global cereal production for the year by 21.5 million tons, in addition to the May estimate of 2.5 billion tons.
Earlier this month, Russian food bans led to a fear that the downward trend of food prices would reverse. Russia decided to ban food imports from the United States, the European Union, Norway, Canada and Australia for at least one year in response to Western sanctions on Moscow over the Ukraine crisis. Yet given the gradual easing of tensions in this situation, FAO economists say it is unlikely this will significantly affect the global price index.
“The lingering decline of food prices since March reflects much better expectations over supplies in the current and forthcoming seasons, especially for cereals and oils, a situation that is expected to facilitate rebuilding of world stocks,” said Cale.
Individually, three of the five price indices have dropped, while sugar and meat remain a bit more of a concern. Cereals were down 5.5 percent from June and 16.6 percent from one year ago. Vegetable oils were down 4.1 percent from June, due primarily to reductions in soy and palm oil prices. Palm oil weighs heavily in the global food price index, because it is the most widely traded edible oil in the world. Dairy also fell 4.4 percent from June and 7.2 percent from the previous year. The FAO announced that this “[reflected]both reduced import demand and abundant export availability.”
The sugar price index has remained fairly stable, rising only 0.4 percent from June. Yet it was also up 8.4 percent from the previous year. The rise is attributed to uncertainty about sugarcane crop yields in Brazil, the largest global supplier of sugarcane. Meat traditionally remains in high demand in Asia—and primarily in China—resulting in the meat price index rising 1.8 percent from June and 14.1 percent from the previous year. “Livestock product markets have their own dynamics: in the case of meat, beef in particular, many exporting countries are in a herd rebuilding phase, which is limiting availability for exports and sustaining prices,” Cale said.
Despite sugar and meat prices—as well as Russia’s food ban—it is hopeful that the global food price index will continue to fall. When more food is available at lower prices, it increases the likelihood of ample food aid being delivered to poverty-stricken, developing countries. Food aid eases the burdens of the poor, who can subsequently produce more food and resources in the future and eventually become integrated into the global market. This can thus drive food prices down in years to come and contribute to a positive cycle in aiding the world’s poor.
– Mari LeGagnoux