Food prices are staying lower for longer, says FAO

By Niamh Michail contact

- Last updated on GMT

Food prices are staying lower for longer, says FAO

Related tags: Agriculture

Commodity prices are low and steadily falling according to the FAO – but this boon to food security comes at a cost to farmers and threatens to create a sluggish, unresponsive farming sector, it says.

The FAO'S biannual Food Outlook report put the falling prices down to high inventory levels – stocks of storable goods such as cereals – as well as significantly lower oil prices and a strong US dollar. What's more, these do not seem likely to change in the short term, the report says – although unfavourable weather conditions and damage to harvests cannot be excluded.  

Staple grains are at the core of the downward price trend after several years of good harvests and record high reserves, although global trade in cereals is declining with the forecast for 2016/2016 at around 364 million tonnes - down 2.9% on the previous period.

Commodity specialists and co-authors, Adam Prakash and Friederike Greb, write: “The takeaway message here is that statistically, the most recent shifts in behaviour foresee downward price momentum with lower volatility. This is particularly evident for predominantly storable commodities such as cereals, but less so for more perishable commodities such as meat and dairy products.”

Lower prices – but at what cost?

But the report warns that while lower food prices seem to be a boon to food security, this comes at a cost of lower income for farmers and, in the longer term, a sluggishness in the agricultural sector.

“Falling output prices may well impinge on farmers’ profitability, reducing on-farm investments and unsustainable agricultural practices, e.g. overly intensive resource use. Low returns could also reduce incentives for wider investment in agriculture, including rural infrastructure (e.g., roads, warehouses and port facilities), credit availability, input services, research and extension.

“Paradoxically, underinvestment in agriculture has often been cited as one of the main causes for the sharp price hikes of the last decade, as it had lowered the capacity of world agriculture to respond when most needed.”

Adverse weather conditions hit rapeseed crops in both Europe and Canada, the world’s leading producers, but prices for oil crops – vegetable oils, oilseeds and cakes – will continue their downward trajectory. 

Meanwhile, after a period of decline, meat prices stabilised between April and September, although this was mostly due to a rise in bovine prices, with other categories falling. The remainder of 2015 will see a modest rise in meat production to 318.8 m tonnes, with the largest increases expected in the EU, US and Russia.

International dairy prices rose in September 2015 after several months of decline and global trade in dairy is forecast to fall by 1.7% due to a weakened demand. FAO reported that for the first time since 2006, dairy imports in Asia are expected in contract in 2015, due to a sharp fall in demand from China after several years of exceptional growth.

The global seafood industry has also seen falling prices with production forecast to grow by 2.6% to 168.6 m tonnes, due in part to a 5% boost in aquaculture output.

“The overall outlook for seafood international trade volumes in 2015 is generally positive, although falling prices for some species are likely to result in a lower trade value. More specifically, increasing production should exert downward pressure on shrimp prices [and] salmon prices may be negatively affected by the sustained production growth in Norway."

Consumer demand for fish remains strong, with direct human consumption accounting for more than 85 percent of all fish uses, the report says.

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