The prices of basic food commodities are falling

The prices of basic food commodities are falling

June 03, 2016

The prices of basic food commodities are falling

This is according to the FAO – The World Food and Agriculture Organisation – which constantly monitors the main prices of food products such as cereals, meat, dairy, vegetable oils and sugar.

The start of 2016 has seen a drop in the prices of basic food commodities, and in January they were as low as they had been for around seven years. The data comes from the FAO – The World Food and Agriculture Organisation – and specifically from the Food Price Index, the index of food prices which FAO experts update every month on the basis of careful observations of global markets. The last year has seen an overall decrease of 16%, despite the normal fluctuations experienced by some products in a relatively predictable way.

A basket of five fundamental products
Cereals, meat, dairy, vegetable oils and sugar are placed in the “basket” which the FAO uses to calculate the food price index, taking into account the prices of these basic raw materials on international markets. To give some benchmark figures, according to official data, in January the price of sugar fell by 4.1% from December, thanks largely to increased production in Brazil, and the price of dairy products decreased by 3% as a result of high levels of supply both in the EU and New Zealand, and weak export demand. Less dramatic, but just as significant, were falls in the price of cereals (-1.7%) due to high global supply and export competition, vegetable oils (-1.7%) especially soya, and meat (-1.1%) apart from pork. In February, the index remained largely stable compared to the previous month, despite some significant changes, such as the spike in vegetable oil prices, partially balanced out by a drop in the prices of sugar and dairy products.

One change, many causes
There are many factors contributing to the change in the prices on the market, and they are not always closely linked to the production and consumption of the foods which are assessed. For instance, at the start of this year, the FAO identified three key factors responsible for the drop in prices: vast agricultural supplies, a slow-down in the global economy and the strengthening of the dollar. However, there are many others which the Barilla Center for Food & Nutrition (BCFN) has included in a model designed specifically to identify the variables which can influence the prices of food commodities. The model is useful for evaluating the effects of the changes in food prices on families’ food security, especially those in situations of poverty, and on the stability of countries, both from an economic and political point of view. It is also important to maintain a focus on the future, as projections for the coming months can influence trends on market prices. For the current year, for example, there are contrasting forecasts on the production of cereals influenced by weather patterns caused by El Niño, an atmospheric phenomenon which will have an impact on the prices of agricultural products.

Changes from within and without
So what are the factors which influence food prices? There are two main types: endogenous and exogenous, or internal and external. Among the main factors are those connected to the demand for food commodities (such as levels of reserves, types of food, and economic growth) and others connected to supply (including agricultural production, the effects of climate changes, and the scarcity of natural resources). Some of the most significant external factors include financial market trends and the fluctuations in speculation on agricultural products, the price of oil and energy, international trade policies and geopolitical dynamics. The interaction between all these factors generates the final price of the products which end up on our plates and it is important to appreciate that, due to the complexity of the global context and these reciprocal influences, it is not necessarily the case that a drop in prices on international markets will have a positive effect on individual consumers.

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