Persistent high food prices and a winter’s tale of the FAO index
In this chart I have divided the period from 2006 January till 2012 September into four sections. These four sections represent different phases of the global food price rise and consequent levels of persistent food price inflation. As with all price series movements, the sections flow into and from one another, but with the five components taken together (I have omitted the sugars index, so these five are food, cereals, oils, dairy and meat) the sharp upward and downward gradients become visible. These differences help find the four different sections of prices over the last six years and nine months.
Most conspicuously, what is immediately clear from the main chart is that the current period of high food prices (and high levels of food price inflation coupled with volatility in global, regional and local food markets) began in 2010 June and established a new set of plateaus by 2010 August. It is now therefore two years of such a plateau, and the worrying indications are that, as happened in 2009 August and September, we may be on the cusp of an even higher upward movement of prices.
The thin lines representing averages for the five separate index components (four plus the main food index) are visible for each of the four sections. These provide more evidence of the higher overall index and graphically show the very worrisome duration of the current elevated plateau of prices – the averages for the 2010 June to 2012 September period are higher than the averages for the 2007 May to 2008 November period. Thus the optimistic pronouncements by FAO on the monthly variation in its index – such as this month’s “the FAO Cereal Price Index is 7 percent higher than in the corresponding period last year but still 4 percent below the peak of 274 points registered in April 2008” – fail to present the context, that it is not how far below the 2008 peak but how much the current average is higher than the 2007-08 average that matters.
Indeed, using the FAO food price index data released early in 2012 October (covering the period till 2012 September) this may be the FAO confirmation of the signal that the widespread droughts of 2012 have begun to affect food prices even at this already elevated level. It is all the more worrying since, in the period since 2006 January and which includes the 2007 May to 2008 November period, this is the longest period of sustained high food prices recorded by the FAO food price index. These are the long-term signals that are not conveyed by FAO’s standard monthly chart, which you can see here.