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Manufacturer price pressures continue as FAO food price index rises

By Caroline SCOTT-THOMAS , 04-Oct-2012

The Food and Agriculture Organization (FAO) food price index rose in September, up 1.4% from its August level, putting further pressure on manufacturers to pass on increased costs.

The food price index, based on the prices of a basket of internationally traded food commodities, was stable in August but September’s increase reflects higher prices for dairy, meat and cereals, while the price of oils and sugar fell. At 216 points, the index stands 22 points below its peak of 238 points in February 2011, and 9 points below its level of 225 points in September last year. 

Parmjit Singh, partner and head of the food and drink sector group at global law firm Eversheds, said: "News that global food prices have increased, albeit slightly, in September will put further pressure on already squeezed international food supply chains. Manufacturers and producers will naturally want to pass on increased costs to their clients but they will meet with stiff resistance from retailers who are reluctant to increase checkout prices for increasingly value-conscious consumers.”

Thinking local

He said that the rising trend of localised sourcing may go some way to easing supply concerns, but could also lead to further price rises if certain retailers find options are thereby limited.

“All in all, the net result will be further pressure on supply chains and, ultimately, consumers paying more for the food on their plates,” he said.

The FAO has said that the food industry should remain vigilant, but has rejected the idea that recent food price volatility could lead to a world food crisis. Last month, however, UN agency executives urged collaborative action to calm food commodity markets.

In the long term…

Singh added: "Looking over the longer term, with commodity prices likely to trend upwards and an increasingly volatile global climate, concerns over food security and scarcity - such as those witnessed in Russia last year and the recent drought in the USA - are likely to come increasingly to the fore.”

Food security is of particular concern in Africa, which has 28 of the 35 countries that the FAO lists as “affected by food insecurity and requiring external assistance for food.”

The organisation also said that deteriorating food security is a major concern in Syria, amid ongoing civil unrest.

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