Global food prices drop to lowest level since December 2010

The UN’s Food and Agricultural Organisation (FAO)’s monthly Food Price Index, a ‘food basket’ made up of oilseeds, cereals, dairy, meat and sugar, fell 2% last month compared to August, mostly on lower international prices of grains, sugar and oil.

The report said the anticipated recovery in global cereal production combined with lower than earlier anticipated demand, including for ethanol, are contributing to a decline in prices.

In September, international prices of all cereals with the exception of rice fell sharply, driven by large export supplies from the Black Sea region and prospects for a weakening of demand.

The UN agency’s quarterly report - Crop Prospects and Food Situation - forecasts world cereal production will total 2.310 million tonnes in 2011/2012 - 3% higher than last year.

Indeed, this is 3 million tonnes more than the FAO forecast last month, largely because of improved expectations for wheat and rice crops.

The overall year-on-year increase includes a 4.6% rise in global wheat production, a 3% rise in the rice harvest and a 2.1% hike for coarse grains.

But the FAO warns that despite the expected production gains, because of the slowdown in the global economic recovery and increased risks of recession, there is uncertainty as regards the impact on world food security.

And, Abdolreza Abbassian, a senior economist at the FAO, said that the US dollar’s relation to food prices is often overlooked.​

If the dollar were to appreciate or strengthen against the importing country’s currency, then some or all, depending on the change, of the benefit of lower prices may be lost to the rising dollar, he explained.

In December 2010, the FAO food price index rose above its 2008 peak. In March 2011, the index dropped for the first time after eight months of continuous price spikes. Food prices remained virtually steady in April 2011.