Resources Research

Making local sense of food, urban growth, population and energy

Only 16 points under the 2008 peak, FAO’s food price index

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International prices of most agricultural commodities have increased in recent months, some sharply. The FAO Food Price index has gained 34 points since the previous Food Outlook report in June, averaging 197 points in October, only 16 points short from its peak in June 2008. The upward movements of prices were connected with several factors, the most important of which were a worsening of the outlook for crops in key producing countries, which is likely to require large draw downs of stocks and result in tighter global supply and demand balances in 2010-11.

Another leading factor has been the weakening of the United States Dollar (US Dollar) from mid-September, which continues to sustain the prices of nearly all agricultural and non-agricultural traded commodities. The increase in international prices of food commodities, all of which accruing in the second half of 2010, is boosting the overall food import bill in 2010 closer to the peak reached in 2008.

Seedlings waiting to be transplanted in village of Gbarnga-ta, 15km from Gbarnga in Bong county, where CRS and Caritas NGOs support farmers to diversify their crops as part of their nutrition push. Photo: Anna Jefferys/IRIN

Seedlings waiting to be transplanted in village of Gbarnga-ta, 15km from Gbarnga in Bong county, where CRS and Caritas NGOs support farmers to diversify their crops as part of their nutrition push. Photo: Anna Jefferys/IRIN

The pressure on prices to rise was first felt in the cereal market, most notably for wheat and barley, in August. This prompted FAO to call for an extraordinary meeting on 24 September 2010 to discuss the underlying causes and possible remedies. The meeting clearly identified the importance of reliable and upto-date information on crop supply and demand to cope with unexpected developments in world markets. More transparency and a better understanding of the role of commodity futures markets and government responses were also viewed as necessary to address price volatility.

Amid fears of a repeat of the price surge experienced in 2008, FAO expects supplies of major food crops in 2010-11 to be more adequate than two years ago, mainly because of much larger reserves. The fact that supplies of rice, wheat and white maize, the most important staple food crops in many vulnerable countries, are also more ample lessens the risk of a repeat of the 2007-08 crisis in the current season. Nonetheless, following a series of unexpected downward revisions to crop forecasts in several major producing countries, world prices have risen alarmingly and at a much faster pace than in 2007-08.

Attention is now turning to plantings for the next (2011-12) marketing season. Given the expectation of falling global inventories, the size of next year’s crops will be critical in setting the tone for stability in international markets. For major cereals, production must expand substantially to meet utilization and to reconstitute world reserves and farmers are likely to respond to the prevailing strong prices by expanding plantings. Cereals, however, may not be the only crops farmers will be trying to produce more of, as rising prices have also made other commodities attractive to grow, from soybeans to sugar and cotton.

This could limit individual crop production responses to levels that would be insufficient to alleviate market tightness. Against this backdrop, consumers may have little choice but to pay higher prices for their food. With the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011 and be prepared.

5 Responses

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  1. […] Resources Research summarizes: International prices of most agricultural commodities have increased in recent months, some […]

  2. […] are underlying pressures pushing up food and commodity prices – not just natural disasters, but also the fall in the price of the dollar – but it still seems that the main culprits are speculators awash with cheap and easily […]

  3. “The meeting clearly identified the importance of reliable and up-to-date information on crop supply and demand to cope with unexpected developments in world markets. More transparency and a better understanding of the role of commodity futures markets and government responses were also viewed as necessary to address price volatility.”

    How terribly polite of you – because its not the speculators or anything…

    http://fixingtheeconomists.wordpress.com/2011/01/05/biflation-enters-dangerous-territory-blame-the-weatherman/

    (Good piece, by the way…).

    pilkingtonphil

    January 8, 2011 at 08:56

    • Dear pilkingtonphil. Thanks for your comment. Yes that bit came direct from FAO, which in its public statements says too little and too weakly. It is an intergovernmental organisation and so will not. Its field staff may hold views quite different from what HQ in Rome does, and these can be found by looking at some of the regional meeting documentation. There’s no doubt the global agri commodities trading system is in high gear – I’m seeing that clearly in Asia. But in the UN system it’s the Special Rapporteur on Food who will say that, rarely any others. Regards, Rahul

      makanaka

      January 8, 2011 at 10:56

  4. […] / Food inflation crippled India’s households in 2010 / Early price indicator for 2011 foodgrain / Only 16 points under the 2008 peak, FAO’s food price index / Bringing nutrition back into climate change talks / Grain market outlook, end October 2010 / How […]


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