World Food Prices at 18 Month High

Published on: 14 Oct 2016

World food prices have reached an 18-month high in September, returning to levels not seen since March 2015.

The United Nations food agency reported that the rise was mainly led by the cost of sugar.

Food Prices Rise

The Food and Agriculture Organization, also known as FAO, measure monthly changes in food prices. They take the price of a basket of cereals, oilseeds, dairy products, sugar, and meat to create their food price index.

This food price index rose by 2.9% from August to September, reaching an average of 170.9. This was actually 10% above the same figure of September 2015.

As a result, the FAO have been looking at their forecasts and adjusting figures. In particular, their estimate for cereal production around the world in the 2016-2017 rose to 2.569 billion, an increase of 3 million. A record crop is predicted from Russia: having produced almost 105 million tonnes in 2015, they are looking to raise this figure to 111 million tonnes in 2017.

This is the seventh time that prices have gone up over the last eight months, which clearly has a knock-on effect on food production as well as on the ability of consumers around the world to purchase the foods they need, particularly in poverty-stricken areas. Extra support

Prices for staple grains have gone down, but this was offset by the rise in sugar costs as well as a rise in dairy and vegetable oil costs.

Sugar ImageThe sugar prices in particular had a surge of 6.9%, a huge spike in relation to the other changes.

Global Issues

So what causes this kind of shift in values? As is often the case, these changes were caused by production issues around the globe. The sugar prices can be tied for the most part to bad weather in Brazil, which has caused production to drop, particularly since this country is the largest producer and exporter of sugar in the world.

Meanwhile, other countries have added to the pressure on the market. Thailand and China are reportedly tight on supplies, while production has fallen in India in recent months.

"A lot of the September increase has to do with sugar, so if sugar prices were to stop increasing, the index would be more or less flat," said FAO senior economist Abdolreza Abbassian. "But the scope for big declines is not there."

The FAO also reported that they believe global food markets will remain "generally well balanced" over the next year, as the costs for most food items were "relatively low and stable.”

Their report also predicts good things for wheat output, which is set to rise by 1.2% globally. This is due to larger harvests in Russia, India, and the US.

This is good news for supply chain specialists, who may be able to push prices down and get better deals thanks to the largescale production. This will be no consolation for those who deal in sugar, however, with price hikes looking set to continue as the underproduction shortage remains.

Food Image 1Food prices around the world remain a cause for concern, as some areas are hit harder than others. Recent reports show that food prices as a whole have fallen over the past year in the UK, meaning that food suppliers will be taking the brunt of the drops caused by competing supermarkets.

The FAO will be keeping a close eye on the developing situation, and it is expected that prices will perhaps fall again over the next few months in order to stay at that relatively stable level which has been predicted.