The FAO Food Price Index averaged 213 points in August 2012, unchanged from July.

In announcement that will bring relief for many around the world, the UN Food and Agriculture Organisation has revealed that global food prices remained steady in September.

After fears over scarcity sparked in a large part by drought in the United States led grain prices to soar to record heights in July, there were concerns that food prices could continue to rise inexorably over coming months, leading to a potential food crisis like that seen in 2007/08.

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Upon unveiling the current Food Price Index, which is calculated by measuring prices of a ‘basket’ of staple food items around the world, FAO Director-General José Graziano da Silva said, “This is reassuring. Although we should remain vigilant, current prices do not justify talk of a world food crisis. But the international community can and should move to calm markets further.”

Graziano da Silva had demanded the United States relax its biofuel mandate in July, at the height of concerns over rising food prices. Grain rallies were sparked when the US Department of agriculture revealed the extent to which hot, dry conditions had affected the US’ main grain crops. The biofuel mandate sees 40 per cent of US maize, the world’s largest export crop, going to bioethanol production and the FAO director feared this would cause competition between fuel and food, excluding the world’s poorest from access.

In addition to the United States, Southern Europe, the Black Sea region (a major wheat producer), parts of Australia and India have also fallen into drought, though in India Monsoon conditions have accelerated to within normal range this month. Russia’s wheat output is forecast to be down 29 percent in 2012, and the situation in Kazakhstan and Ukraine is set to be worse still; production is set to fall by 47 percent and 37 percent respectively in these countries.

Following three months of consecutive decline the FAO Food Price Index spiked six percent in July. In August, although meat and dairy prices rose, falling sugar prices and little change in cereal or oil prices meant food prices remained static around the world.  

Maize prices, which drove rises in cereal prices in July eased in August, though wheat prices continued to rise slightly. FAO analysts said, “Deteriorating  crop prospects for maize in the United States and wheat in the Russian Federation initially underpinned export quotations, but prices eased towards the end of the month following heavy rains in areas hardest hit by drought in the United States and the announcement that the Russian Federation would not impose export restrictions.”

The analysts added, “Although still high, the FAO Index currently stands 25 points below its peak of 238 points in February 2011 and 18 points below its August 2011 level.”

Tightening supply-demand balance

nevertheless, despite the current easing of pressure in the grain markets, the latest forecasts also confirm a significant tightening of global grain supply-demand balance in the 2012/13 marketing season.  FAO's Cereal Supply and Demand Brief, published together with the Food Price Index, said global cereal production will not be sufficient to fully cover expected utilization in 2012/13, pointing to a larger drawdown of global cereal stocks than had been anticipated.  

The latest forecast for world cereal production in 2012 stands at 2,295 million tonnes, down 52 million tonnes (2.2 percent) from 2011’s record harvests. The new figure represents a f4 percent drop from the FAO’s previous estimate made in July.

FAO said, “Global cereal utilization in 2012/13 is forecast at  2 317 million tonnes, down marginally from the previous season and 2 percent below the 10-year trend. High grain prices are seen as curbing demand, especially for production of fuel ethanol from maize.”   

Other food commodities

Meat and animal product prices rose 2.2 percent between July and August. Prices rose across all types of meat, though pig and poultry drove the rises, having declined for three consecutive months prior to August.

Dairy prices rose 1.6 percent, sustained by increases in the prices of skim milk powder, casein, butter and whole milk powder. Cheese prices remained stable. Much of the recent strength stems from firming demand combined with production constraints in areas affected by drought and rising feed costs.

Sugar prices fell 8.5 percent. Prices are currently down 25 percent compared to this time last year. This month's sharp fall in sugar prices reflects an improved production outlook amid more favourable weather conditions in Brazil, the world's largest sugar exporter, supportive of sugarcane harvests, and  recovering monsoon rains in India, FAO said. 

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