Visiting our total household food budget

Twice as much over the 11 years until 2009-10, and three times as much over the 10 years until 2012-13. That has been the increase in rupee expenditure for this basket of foods.

The data is from the private final consumption series, calculated by the Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation (MoSPI). The totals (left scale of the chart) is in thousand crore rupees.

In this chart I have shown the expenditure (in current rupees) for: Cereals and Bread, Pulses, Sugar and Gur, Oils and Oilseeds, Fruits and Vegetables, Milk and Milk Products, and Meat Egg and Fish. These totals also indicate the size in rupees of the food industry – but do not include the processed and packaged food industry.

The rise in consumption expenditure expressed in rupees is a money measure alone, and not a quantity or volume measure. We can see that the portion of milk and milk products in this group has gone up from just over 18% to 25% over 14 years, and the portion of meat, eggs and fish has gone up from just under 9% to 12.5% over the same period.

From 2006 the rising trend of expenditure on fruits and vegetables became steeper than the rising trend of cereals and bread. In 2005-06 the portion spent on fruit and vegetables in this group was just over 26% and that has risen slightly to 28% in 2012-13. In contrast for cereals and bread, the portion of 27.5% in 2005-06 has dropped to just over 21% in 2012-13.

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Why the FAO food index is also an oil gauge

The revealing relationship between the FAO cereals price sub-index, the OPEC Reference Basket price of a barrel of crude oil, and the Baltic Dry Index (right scale).

The Food and Agriculture Organisation (FAO) of the UN has released its food price index data and commentary for 2014 October. This would be of considerable interest if only the index described the tendencies of food prices as experienced by consumers. Alas FAO’s food price index, as we have remarked upon several times in the past, pays no attention to the true cost of food staples.

Of what use is the FAO index, which is used as a reference by any government (and UN member state) to judge the value of its food exports (or to judge whether when importing grain it is paying what seems to be a fair price)? In the first place, the index (which itself is composed of separately calculated cereal, vegetable oil, dairy, meat and sugar indices) is not a consumer food price index.

The FAO food price index and its component sub-indices for the period 2012 January to 2014 October. A general downward trend, says the FAO, but this is the picture for international food trade and not consumer food retail price.

The FAO has not claimed it is, but neither has the agency clearly and plainly said it is not. It should, because financial and general interest media all over the world report the ups and downs of this index as if it portrays how local food prices move, and of course it does not.

The FAO index is used by international traders whose business it is to buy and sell food staples (including cereal, vegetable oil, pulses, dairy, meat and sugar). Perhaps some of them use it as a benchmark while others forecast trends from its sub-indices. It may be used to validate the accuracy of a particular kind of agricultural commodity futures index, and help judge whether an investment in the production of food, its movement, its stocking or its trade is going to be a good investment or not. As you can gather, it is not an index that consumers can use, because consumers are local and this is assuredly not.

What pulls the FAO food price index up, down or sideways? There are two important factors at work on the main index. One is the price of petroleum products, the other is the cost of moving grain (or any other food staple). You may assess the short or long-term trend of the food index against the current or projected price of Brent crude (preferred in Europe), West Texas Intermediate (preferred in the USA) or the OPEC reference price (preferred almost everywhere else).

The FAO food price index and its component sub-indices for 2014 till October. The downward trend of the last six months, which the FAO commentary is faintly praising, mirrors the trend of crude oil prices over the same period.

And then you will assess what the food price index describes against the cost of moving a large quantity of the agricultural commodity to be traded across an ocean, for which the Baltic Dry Index will be consulted.

[If you are a trader and want the FAO food price data and movements, go here. The usual commentary can be found: “The FAO Food Price Index averaged 192.3 points in October 2014, marginally (0.2 percent) below the revised September figure but 14.3 points (6.9 percent) short of its corresponding level one year ago” and so on.]

To help determine what the FAO food price index is depicting, I have made charts for the index (and sub-indices) for the period 2012 January to 2014 October; for the index (and sub-indices) for 2014 till October; a chart that shows the FAO cereals sub-index together with the OPEC Reference Basket Price for a barrel of crude oil and the Baltic Dry Index (this is the shipping index most commonly referred to for the movement of dry goods by sea) for the period 2012 January to 2014 October; and a chart that plots the changes (from month to month) in the three indexes taken together (FAO Cereals, OPEC Reference and Baltic Dry).

The FAO food price index and the OPEC Reference Basket price of oil have much more in common than the Baltic Dry Index, which has swung with volatility since 2012 January.

What they describe can be found in the captions, but it becomes clear from a glance at the FAO-OPEC-Baltic charts that the food price as calculated by FAO has very much more to do with how energy is used to produce food staples (that is, the use of petroleum products directly, and the use of fossil fuels-derived energy) and how energy is used to transport, store, process, transport it again and retail it.

I see it as an index that describes the energy quotient of industrially produced food staples, and so it has little if anything to do with any other form of agriculture, in particular the smallholder, family-oriented and organic agriculture that the FAO advertises its concern about.

India’s 268,000 crore agri sales to a hungry world

In 2013-14 India exported agricultural products worth Rs 268,469 crore, according to data from the Department of Agriculture and Cooperation (Ministry of Agriculture, Government of India). Marine products, basmati rice and meat were the major export earners. This amount is equivalent to around 44.67 billion US dollars.

There are, as usual, problems with the data. The ‘meat and preparations’ category, the third biggest earner with Rs 27,247 crore, has no quantity figure. Nor does ‘paper/wood products’, the eighth biggest earner (Rs 12,529 crore). Nor do ‘miscellaneous processed items’ (Rs 6,882 crore) or ‘fresh vegetables’ (Rs 5,117 crore).

Here are the top earners by value for 2013-14: Marine Products (Rs 30,617 crore),  Rice Basmati (Rs 29,300 crore), Meat and Preparations (Rs 27,247 crore), Cotton Raw Incld. Waste (Rs 22,248 crore), Rice (Other Than Basmati) (Rs 17,493 crore), Oil Meals (Rs 17,034 crore), Spices (Rs 15,981 crore), Paper/Wood Products (Rs 12,529 crore), Guargam Meal (Rs 11,734 crore). These are the earners above Rs 10,000 crore.

Here are the major quantities exported in 2013-14, in thousands of tons: Rice (Other Than Basmati), 7,019; Oil Meals, 6,564; Wheat, 5,560; Other Cereals, 4,609; Rice Basmati, 3,757; Sugar, 2,460; Cotton Raw Incld. Waste, 1,941; Spices, 1,029; Marine Products, 999; Guargam Meal, 602; Castor Oil, 545; Groundnut, 512; Pulses, 343; Sesame Seeds, 257; Coffee, 254; Tea, 248; Tobacco Unmanufactured, 237; Mollases, 212; Cashew, 121.

Indexing food prices the FAO way

The FAO food price index for 2013 October which includes the calculation and measurement changes. Spot the differences? I can’t.

Why has the Food and Agriculture Organisation (FAO) changed the way it calculates the monthly FAO Food Price Index? But hold on, let us scrutinise first what the FAO Food Price Index is for 2013 October.

The FAO has said: “The FAO Food Price Index rose slightly in October, averaging 205.8 points. This was 2.7 points, or 1.3% above September, but still 11 points, or 5.3% below its October 2012 value. The slight increase was largely driven by a surge in sugar prices, although prices of the other commodity groups were also up.”

The usual blue pair.

In substance, this sort of commentary for the FAO monthly food price index barely differs from the standard tedious template, in tone and tenor, that FAO has applied throughout 2013. The tone has been, as we begin to close 2013, that food prices have not moved very much through the year, and the tenor has been that food price volatility is being reined in.

Based on the evidence provided by real prices I experience in India – real markets (or bazaars or mandis) in which real vendors sell actual produce to real household buyers – I have no idea what the FAO Food Price Index is talking about. Nor do tens of millions of urban and rural households all over the world when they try and correlate the numbers of the FAO index to what they must confront every time they make a food purchase.

This is because of what the FAO Food Price Index measures which, I wearily point out, is a criticism levelled time and again. Why call it a food price index when it is in fact a food exporters’ and importers’ price indication?

Impressive equations, but where’s the connection with the local markets you and me buy our veggies from?

Now, with a change in its calculations, the FAO index includes the following 23 commodities: wheat (10 price quotations monitored and reported by the International Grains Council), maize (1 quotation) and rice (16 quotations) for cereals; butter, whole milk powder, skimmed milk powder (2 quotations for each) and cheese (1 quotation) for the dairy group; poultry (13 quotations), pig (6 quotations), bovine (7 quotations) and ovine (1 quotation) for the meat dairy group; sugar (1 quotation); the oils group consists of one oil price quotation for soybean, sunflower, rapeseed, groundnut, cotton seed, copra, palm kernel, palm, linseed and castor. This construction, thus, includes the use of 73 price series.

The FAO has said: “The Index, which is a measure of the monthly change in international prices of five major food commodity groups (including 73 price quotations), has undergone some changes in the way it is calculated, although the new approach did not significantly alter the values in the series.” (See the Food Outlook released in 2013 November.)

Perhaps. We will not know for another few months. If a change was needed that made sense to consuming households, then FAO should have ensured the index reflected what households pay for the food the buy in the markets near their homes. If the FAO must serve multiple audiences, then it must devise food price indexes for these audiences separately (but the IGC already serves the food traders, and FAO’s own Agricultural Market Information System already serves the policymakers and the major international blocs).

For all the pork in China

“China’s strategic pork reserve is the direct consequence of an emerging, meat-eating middle class and a government determined to feed them,” is how the journal Fast Coexist called it (link below). Photo: Courtesy Fast Coexist

The Earth Policy Institute has a startling data highlight about the consumption of pork in China. Half the world’s pigs, more than 470 million of them, live in China. While meat consumption in the United States has fallen more than 5% since peaking in 2007, says the institute, Chinese meat consumption has jumped 18%, from 64 million to 78 million tons — twice as much as in the USA (see the charts below). China already buys more than 60% of the world’s soybean exports to feed to its own livestock and has been a net importer of pork for the last five years.

In late May 2013 the American company Smithfield Foods Inc, which is reported to be the world’s leading pork producer, was bought by the Chinese company Shuanghui International, which is the owner of China’s largest meat processor. The acquisition has been reported by China Daily; USA Today seemed cautiously happy about China’s buying of American hogs; Forbes hastily attempted an analysis of what it all means; Fast Coexist provided that analysis with knobs on.

People in China ate 53 million tons of pork in 2012, which is six times as much as in the USA. On a per person basis, consumption in China first eclipsed that in the USA in 1997. Now the average Chinese eats 39 kg of pig meat each year, compared with 27 kg in the USA. Charts: Earth Policy Institute

How the crop cultivation and food habits of 1.21 billion are being hijacked

A woman sells small seasonal fruit from her basket on a bust main road in Mumbai (Bombay).

In both 2009 and well as this year, 2012, there were droughts. The impact of one drought on rural cultivating households is considerable, and we have known of the severity of these impacts ever since the chronicling of the famines of 1943-44. What happens when over a five-year period, there are two droughts? Before the end of 2012, we shall begin to know, and this will be a grim learning – drawing from the conclusions of several surveys conducted on drought and its impacts between 1970 and 2002, rural cultivating households suffer annual income losses of at times more than 60% in drought years. Can they recover enough in three years to withstand such drastic income erosion a second time in quick succession? We will learn soon enough, but the circumstances in which we learn is already being influences by major changes afoot.

Let us consider the global concern about drought and the need expressed for support to cultivating (and rural food consuming) populations experiencing drought (and food price inflation) stress. “We cannot allow these historic price hikes to turn into a lifetime of perils as families take their children out of school and eat less nutritious food to compensate for the high prices,” said World Bank Group President Jim Yong Kim in a recent statement concerning high food prices. “Countries must strengthen their targeted programmes to ease the pressure on the most vulnerable population, and implement the right policies.” The World Bank, together with other multi-lateral lending organisations and many governments worried about agrarian distress and chronic food price inflation, has spoken often about “measures and policy to protect the most vulnerable against future shocks”.

The immense sprawl of Mumbai, with over 20 million inhabitants, a food magnet that drains food producing districts up to 500 kilometres inland.

What sort of measures have been and are being discussed and implemented? They include agriculture-related investment, policy advice, fast-track financing, support for safety nets, the multi-donor food security programmes, and risk management products. The Government of India has also talked about cash transfers and increased investment in agriculture, in the same breath that it has talked about technological ‘solutions’ (the introduction of drought-resistant crop varieties, they like to call it) to surmount the yield per hectare limits currently experienced in food crop staples. How sensible or opportunistic are these measures? How true are they towards being ‘inclusive’ and ‘participatory’ (terms our government and major line ministries, including the Ministry of Agriculture and the Ministry of Rural Development, like to use)? How much are they driven by the demands of industry rather than the needs of the food insecure and price vulnerable?

Before I indicate some of the answers, it is useful to look at the conditions in the same sector in our neighbour, the People’s Republic of China.

Inside China, the country is fast approaching the limit of its own available farmland resources – the so-called ‘red line’ for food security of 120 million hectares of arable land, set by the government. China’s typical solution has been to import cheaper agriculture commodities like soybean and maize while saving its farmland for higher-value exports like fish and vegetables. But there is another force driving the rise in soybean and maize imports: the rise in meat consumption in China (a reduced example of which we are seeing in the cities and towns of India, in which the middle class diet includes a growing meat component, usually poultry). In China, meat is increasingly coming from large-scale commercial farms – not small-scale or household farmers – and is therefore dependent on animal feed rather than food waste (which has and continues to be an important portion of animal feed – think goats and chicken – for India’s small agricultural households).

From a growers’ collective in India’s Western Ghats region, a visual aid to help urban consumers identify vegetables that can be grown organically in cities.

Looking back at the pronouncements of India’s planners – whether in the Ministry of Agriculture, in the Ministry of Chemicals and Fertilisers, the directorates in states for major crops and horticulture – and its lobbyists (mostly in the chambers of commerce and trade associations) one comparison made frequently with China is seen: that our per hectare use of fertiliser is low. What they conceal is the tremendous ecological damage that has taken place in China as a result of unregulated growth in the use of synthetic and inorganic fertilisers, which has rendered toxic and sterile vast farming tracts in China. To even consider such an approach in India ought to be anathema to our farmers – but they are being pressured and coerced by a business-centric lobbying front which is alas being supported by the central government and by the governments of major states.

“Smallholder farmers are capable of producing the food necessary to feed their country, but face increasingly difficult barriers,” concluded a recent report from the international NGO Grain, which campaigns for farmers’ rights worldwide. The report by Grain added that government decisions to rely on agricultural commodity imports serve the interests of agribusiness and its need for cheap sources of feed “but threaten the land, livelihoods and local food systems of communities”. It is this linkage that lurks behind the recent ‘reform’ (a distorted and dangerous term) that now has permitted foreign direct investment (FDI) in India’s (and Bharat’s) agriculture and food retail sector.

Such changes come against a legacy of corruption concerning access to and misuse of foodgrains that deeply affect our public distribution system and with it, equitable and affordable access for our population to nutritious food. A recent report in Bloomberg, the international news agency, exposed one such fraud, which found that Rs 2,700 crore worth of foodgrain “was looted by corrupt politicians and their criminal syndicates over the past decade” in Uttar Pradesh alone. The report quoted Naresh Saxena, a commissioner to the Supreme Court who monitors hunger-based programmes across India, as having said: “This is the most mean-spirited, ruthlessly executed corruption because it hits the poorest and most vulnerable in society. What I find even more shocking is the lack of willingness in trying to stop it.” How can they begin to stop it when, in a country whose agricultural production in absolute numbers has reached ecological limits, the food retail and processed food industry continues to demand more? And will pay more for new supplies and will gratify the looters more?

A one-kilo packet of ‘ragi’ (finger millet) from an organic farm in Andhra Pradesh state, central India, packaged and labelled in a manner that provides an alternative to the premium rice brands (mostly basmati) sold in urban centres.

Imagine the psychological effect of this sort of fraud on those who work in and for our agriculture markets. The number of regulated (secondary) agricultural markets (‘mandis’) stood at 7,157 as of March 2010 (compared to just 286 in 1950). There are also reckoned to be about 22,200 rural periodical markets, about 15% of which function under the ambit of APMC (Agricultural Produce Market Committees) regulations (there are at least 27 such acts in different states). It is against this density of local collection and distribution that the impact of agri-business on inflation (both direct and indirect) may be viewed. The direct impact of agribusiness is visible in the form of food price inflation, as the Reserve Bank of India has also observed. There is demand arising from increasing population and (especially in urban and urbanising centres – see this report in a business daily, which ignores entirely the food demand footprint of urbanising India) prosperity has outstripped the growth of agricultural output, hence food inflation in India will certainly to persist and deepen (in rural areas as a result of the agri-business-led escalation of marketing channels and investment in infrastructure to move crop and food – the current government and its industry partners are doing all they can to convince middle-class urban India this is good for ‘growth’).

There is a dictatorial emphasis on food processing, on trading (consider the number of commodity exchanges today compared with ten years ago, and the much enlarged scope of their futures trading business, all of which requires access to stored raw crop that serves as the basis of such trade) and on marketing. The growing demand for protein-rich and what are called “high-value foods” (fruit, vegetables, edible oil and meat) is simultaneously raising the demand for what the food industry (processed food manufacturers, food retailers, crop terminal markets promoters, exporters) calls “high quality, safe and convenient (frozen, pre-cut, pre-cooked and ready-to-eat) foods”. Hence the view now shared by the central government, planning agencies and business and industry associations is that meeting these demands will facilitate growth (of national GDP and of the agriculture sector; see the National Summary Data Page for growth rates, however meaningless these are to the cultivating households of rural Bharat) and moderate inflation (in complete disregard of evidence from countries all over the world in which the growth of modern food retail has contributed to inflation in the prices of food staples).

The strength of the ‘growth’ totem does not diminish, and nor does the artificially inflated appeal of the ‘growth is good, more growth is better’ fiction. This is wholly and utterly misguided and mischievous and is responsible for deepening the agrarian distress in Bharat. How entrenched this fiction is can be seen in allegedly authoritative pronouncements that can be found even by the RBI, which recently said: “There is, however, near unanimity, amongst all that agriculture and agri-business growth is a necessary prerequisite for moderation of inflation, particularly food inflation, as well as for acceleration and sustenance of inclusive growth.” Growth as defined by the resource-intensive and ecologically destructive direction of the central government, Indian business and an urban middle class divorced from rural realities has directly caused this same inflation the RBI (and others) is complaining about. Yet in the policy space the contradiction is ignored – true reform that benefits Bharat rather than India is not considered.

A neighbourhood vegetable market in Bengaluru (Bangalore). How these small markets cope with the dictatorship of the food retail and food processing industry will depend on local consumers and their support.

Our central problem in the near future will continue to be the divide between Bharat and India, between food growers and the food consuming populations they support (usually unseen and unheard, often unrepresented). The English-language media that represents the interests of the well-off urban elite have become uniformly uncritical of the different aspects of agri-business and the ‘supply chain’ (another loaded term that spells danger for rural Bharat) which are being transformed (to be fair, major regional language media can be equally uncritical). Reports such as these, one from an Indian business and finance daily, Mint (which holds up GM food as the panacea for India’s food insecurity, and the other from the Wall Street Journal, which is read and quoted in business circles (which said the new ‘reforms’ are not comprehensive enough), reflect the aspirations and tendencies of urban upper middle class India and the disproportionate influence this minority enjoys over national policy, especially policy concerning agriculture and food.

These media views celebrate “rural prosperity” which is “thanks to government job schemes” (no mention of the labour distorting effect of MGNREGA (the Mahatma Gandhi National Rural Employment Guarantee Act) that is now widespread and which has pushed up farm labour costs to benefit the manufacturers of agricultural machinery – see this report for one of the implications of this cost rise, and see this compilation [pdf] by the Indian Social Institute on NREGA-related wages news), the drive for more “domestic demand from rural areas” (to benefit the consumer goods companies and their financiers primarily), the need for “better private-sector jobs in manufacturing and services”, the obsession with how to “boost purchasing power” and the tiresome illogic of “a virtuous cycle of growth”.

The planetary case for a meat-free society

There is no case at all for humans to continue eating the amount of meat they do. In what are commonly called ‘industrialised’ countries (a category that includes most of the OECD countries) the share of meat in total food consumption is around 48% and has been so for several decades (has in fact been so once the overhang of the food shortages of the Second World War wore off, and particularly after the emergence of Europe’s common agricultural policy, which ushered in a change in that part of the world which was as far-reaching in its consequences as was the Green Revolution in South Asia).

Per capita consumption of major food items in developing countries, 1961-2005. Source: FAO

Now we see more clearly that as per capita food consumption has increased it has been accompanied by (those ‘market forces’ at work, the industrialisation of agriculture and the disinheritance from local choices for the average consumer, both by connected design) a change in dietary patterns that can only be described as catastrophic. Those who look at this change from an economic standpoint call it ‘structural’, for we have seen the diets of people in ‘developing’ (forgive the use of this term, so misleading it is, especially when the ‘developed’ world’s ravenous greed for resources turns these very concepts grotesquely on their heads) being altered.

In the South, for these peoples (some of them newly urbanised and whose activities contribute to the growing inequality of incomes – one has only to look at oddly swelling Gini curves to see this), there has been a rapid increases of livestock products (meat, milk, eggs), vegetable oils and, to a smaller extent, sugar, as sources of food energy. These three food groups together now provide 29% of total food consumption (also often called “dietary energy supply”) and this proportion has risen from 20% only three decades ago. Mind, these are not small increases over more than a generation – as a first look at this change will seem to imply. A single percentage point increase over a generation for a country’s population places a very large burden on land, water, crop growing patterns and of course health.

It is the prognosis that I find chilling. The FAO has rather unemotionally remarked that this share is projected to rise further to 35% in 2030 and to 37% in 2050. Can civilisation (let’s assume we can call this human imprint on the planet a single civilisation of a homogenous species although we all know it isn’t, not by any stretch of the fertile imaginations of our tens of thousands of indigenous peoples) tolerate such a shift in how people feed themselves. No, certainly not, the impact is catastrophic already.

Per capita GDP and meat consumption by country, 2005. Source: FAO

There are libraries of evidence to show that demand for livestock products has considerably increased since the early 1960s in the ‘developing’ countries. India, for example, so staunchly vegetarian through its struggle for freedom and through the leisurely years till economic ‘liberalisation’ strengthened its grip on minds and alimentary canals alike, is home to a very large and rapidly growing poultry industry (how quickly the vocabulary turns upon the rational, when did harmonious domestication and the organic circling of the nutrient cycle turn into an ‘industry’, banishing animals from their roles in our ecosystems?) and a fisheries ‘industry’ that has depleted the Arabian Sea (it is the Mer d’Oman from the other side) and the Bay of Bengal of their creatures both demersal and pelagic.

Thus we are confronted by the spectres of consumption of food which is attached, like a motor-car engine is to its crankshaft, to growth-by-magnitude. In the ‘developing’ South, the consumption of milk per capita has almost doubled (recall Operation Flood in India), meat consumption more than tripled and egg consumption increased by a factor of five (recall the National Egg Coordination Committee and its catchy jingle: “Meri jaan, meri jaan, murgi ke ande khana“). And yet, it is not yet South Asia – for the most substantial growth in per capita consumption of livestock products has occurred in East and Southeast Asia. China, in particular, has seen per capita consumption of meat quadruple, consumption of milk increase tenfold, and egg consumption increase eightfold between 1980 and 2005. And yet again, among the developing-country regions, only sub-Saharan Africa has seen a modest decline in per capita consumption of both meat and milk (according to FAO).

Where will this lead to? Into what zone of rolling disaster will the pursuit of the animal protein take our land-water-crop-habitat balance, already so precarious and already on a knife’s edge? The estimates (all bland, all unemotional, as if unable or unwilling to emote the reality to come) are that such demand is set to increase significantly towards 2050 because of population growth and continuing change of dietary patterns. The forecasts ought to be seen as terrifying: according to FAO’s estimates, an increase in the consumption of livestock products will cause a 553 million tons increase in the demand for feed, which represents half of the total demand increase for coarse grain between 2000 and 2050.

The FAO’s regiments of agro-economists and trend watchers have said that income growth in low-income countries and emerging economies will drive demand even higher (the Foresight 2011 report has said so too). They concur that there will be a shift to “high-status and non-seasonal foods, including more meat consumption, particularly in countries with rising income” (ah yes, the rising income, the fata morgana of a tide that lifts all boats, as the development banks have long wanted us to believe). No, comrades, it is not so – Nature does not recognise your balance-sheet.

Modding the FAO food price index to get closer to bazaar reality

The FAO has released its latest food price index data, and the central message for this month is: little change from the last month. The question for us, as we read about and hear about steadily rising food price inflation in the countries of the South, is: why is the FAO food price index not capturing real inflation for these populations?

This chart is a way to rectify that lack. In this, I have used the index data as the composite (food) plus the components (meat, dairy, cereals, oils, sugar) directly from the data, but have re-based them.

The familiar old blue panel.

I have used the monthly data from 2008 January to 2012 March, and re-based them (six series) on each of their minima for the period. Thus, the minima are: Food, 141.3 in 2009 Feb; Meat, 120.4 in 2009 Feb; Dairy, 114.3 in 2009 Feb; Cereals, 151.2 in 2010 June; Oils, 127.3 in 2008 December; and Sugar, 166.7 in 2008 December.

The current readings for all six series (2012 March) are: Food 215.9; Meat 178.2; Dairy 197.0; Cereals 227.0; Oils 244.9; Sugar 341.9.

What this chart does is show the variation by month from the minimum for each series for the period. It is another way of looking at how the indices have moved from a point of low reference in the recent past, and to my mind is more evocative of the real situation in rural and urban food markets in the South.

The April release can be found here. And this is what FAO’s usually bland commentary on the latest month’s movements is: “The FAO Food Price Index (FFPI) averaged 216 points in March 2012, virtually unchanged from 215 points in February. Among the various commodity groups, only oils prices showed strength, compensating for falling dairy quotations, while the indices of cereals, sugar and meat prices were largely unchanged from last month’s level.”

How ‘sticky’ is food inflation? What the FAO food index really says

Using the just released FAO food index update for 2011 August, I have compared the two periods of high food prices, the earlier one in 2007-08 and the continuing period of 2010-11.

Between 2007 Dec and 2008 Sep: for 8 months the Food Index was above 200, and for 10 months the Cereals Index was above 200.

Between 2010 Sep and 2011 Aug: for 11 months the Food Index has been above 200, and for 12 months the Cereals Index has been above 200.

This is the longest period in the last ten years that the FAO food index has been at such a level. This is the backstory of the FAO Food Price Index.

Let’s turn to what the FAO has said about the 2011 August update.

World food prices remained virtually unchanged between July and August 2011. The Index averaged 231 points last month compared to 232 points in July. It was 26% higher than in August 2010 but seven points below its all-time high of 238 points in February 2011. Within the index, cereals prices rose, reflecting the fact that although cereal production is expected to increase, it will not do so by enough to offset the additional demand, so that stocks continue to be low and prices continue to be high and volatile.

The FAO Cereal Price Index averaged 253 points in August, up 2.2%, or 5 points, from July and 36% higher than in August 2010. However, the firmer cereal prices were largely offset by declines in international prices of most other commodities included in the Food Price Index, oils and dairy products in particular.

Cereal price rises stem from a supply and demand balance that remains tight despite the anticipated increase in production. World cereal production in 2011 is now forecast to reach 2,307 million tonnes, 3% higher than in 2010. But this latest forecast is nearly 6 million tonnes lower than the previous forecast published in July.

Among the major cereals, the maize supply situation is a cause for concern following downward revisions to maize crop prospects in the United States, the world’s largest maize producer, because of continued hot weather in July and August. Average wheat prices were also up 9% in August given the strong demand for feed wheat and shrinking supplies of high quality wheat. Nonetheless, world wheat production is forecast to increase by 4.3% (or 28 million tonnes), only 4 million tonnes below the 2009 record.

World coarse grain production is still heading for a record level of 1,147.5 million tonnes, up 2.4% (or 27 million tonnes) from 2010, in spite of lowered maize production prospects in the United States, the world’s largest maize producer. Rice prices also gained with the benchmark Thai rice price up 5% from July, driven by a policy change in Thailand, the world’s largest rice exporter, where paddy rice will be purchased from farmers at above market prices. Global rice production prospects remain favourable, however, with output set to reach a new high of 479 million tonnes, up 2.5% from 2010.

Total cereal utilization in 2011-12 is forecast to increase by 1.4%, almost matching anticipated 2011 production. As a result, global cereal inventories by the close of seasons in 2012 are likely to remain close to their already low opening levels. Only rice stocks are expected to increase significantly, supported by record production. Wheat inventories are likely to decline to their lowest level since 2009 and world stocks of coarse grains are also forecast to plunge, with maize inventories falling to 124 million tonnes, their lowest level since 2007. Given the tight global supply and demand balance for coarse grains, its stocks-to-use ratio is forecast to fall to a historical low of 13.4%.

The FAO Oils/Fats Price Index averaged 244 points in August, following a declining trend since March but still remaining high in historical terms. The FAO Dairy Price Index averaged 221 points in August, significantly down from 228 points in July and 232 points in June, but still 14% higher than the same period last year. The FAO Meat Price Index averaged 181 points in August, up 1% from July. The FAO Sugar Price Index averaged 394 points in August, down 2% from July, but still 50% higher than in August 2010.

Six months of peak for the FAO food index

Since 2011 January, the FAO food price index components have recorded some of their highest monthly readings. Sugar touched a peak in January (420.2) and February (418.2), oils reached highs in February (279.3) and January (277.7), cereals reached highs in April (265.4) and May (261.3), meat touched a peak in June (180.4) and in April (180.4).

The consolidated food price index has been within 6 points (2.5%) of the February peak (237.7) for all the months of 2011. In June 2011 the index is less than 4 points off the February peak.

FAO’s Food Price Index rose one percent to 234 points in June 2011 – 39 percent higher than in June 2010 and four percent below its all-time high of 238 points in February of this year. The FAO Cereal Price index averaged 259 points in June, down one percent from May but 71 percent higher than in June 2010. Improved weather conditions in Europe and the announced lifting of the Russian Federation’s export ban contributed to the price drop.

However the maize market remained tight because of low 2010 supplies and continued wet conditions in the United States. Prices of rice were mostly up in June, reflecting strong import demand and uncertainty over export prices in Thailand, the world’s largest rice exporter. The FAO Sugar Price Index rose 14 percent from May to June, reaching 359 points, 15 percent below its January record. Production in Brazil, the world’s biggest sugar producer, is forecast to fall below last year’s level. The FAO Dairy price Index averaged 232 points in June, virtually unchanged from 231 points in May. The FAO Meat Price Index averaged 180, marginally up from May with poultry meat rising three percent and climbing to a new record, while pig meat prices declined somewhat.

Following two consecutive revisions to the US crops and planting prospects for 2011, FAO’s latest forecast for world cereal production in 2011/2012 stands at nearly 2 313 million tonnes, 3.3 percent higher than last year and 11 million tonnes above FAO’s last forecast on 22 June. World cereal utilization in 2011/2012 is forecast to grow 1.4 percent from 2010/2011, reaching 2 307 million tonnes, just five million tonnes under forecast production. World cereal stocks at the close of the crop season in 2012 are now expected to stand  six million tonnes above their opening levels.  While wheat and rice inventories are expected to become more comfortable, coarse grains stocks, especially maize, would remain tight.

The FAO Food Price Index (FFPI) averaged 234 points in June 2011, 1 percent higher than in May and 39 percent higher than in June 2010. The FFPI hit its all time high of 238 points in February. A strong rise in international sugar prices was behind much of the increase in the June value of the index. International dairy prices rose slightly in June, while meat prices were stable. Of all the major cereals, prices of wheat fell most and rice increased. Among the oils and fats, prices of soybean oil were steady but palm oil weakened.

[Detailed data available from FAO here.]

The FAO Cereal Price Index averaged 259 points in June, down 1 percent from May but 71 percent higher than in June 2010. Improved weather conditions in Europe and the announced lifting of the export ban by the Russian Federation (from July) depressed wheat prices. However, maize markets were supported by tight old crop (2010) supplies and continued wet conditions in the United States. Prices of rice were mostly up in June, reflecting strong import demand and uncertainty over export prices in Thailand, the world largest rice exporter.

The FAO Oils/Fats Price Index averaged 257 points in June, down marginally from May. Continued production uncertainties and expectation of stronger world import demand sustained soybean oil prices. By contrast, palm oil prices eased further, reflecting improved supply prospects and ample export availabilities in Southeast Asia. The FAO Dairy Price Index averaged 232 points in June, virtually unchanged from 231 points in May. This was the result of diverging price movements, with prices of skim milk powder and casein up by 5 percent, whole milk powder down by 3 percent, while prices of butter and cheese remained stable.

The FAO Meat Price Index averaged 180 points, marginally up from May. Poultry meat prices experienced a 3 percent rise, breaking a new record, while pig meat prices declined somewhat. Prices of bovine and ovine meat were subject to modest increases, from already high levels. The FAO Sugar Price Index averaged 359 points in June, up 14 percent from May and only 15 percent below its January record. The price strength reflects  dynamic short-term demand against tight exportable availabilities, notably in Brazil, the world’s largest sugar producer where production is forecast to fall below last year’s level.