The Food and Agriculture Organisation’s monthly Food Price Index declined in December after three months of stability. Continued large supplies and record stocks, combined with a stronger dollar and falling oil prices, contributed to the decline.

The December Food Price Index (FPI) averaged 188.6 points, a drop of 1.7pc from November, led by sugar and palm oil.

For the whole of 2014, the FPI averaged 202 points, down 3.7pc from 2013, marking the third consecutive annual decline.

This year-on-year drop came despite FAO’s sub-index for meat rising to an all-time high annual average of 199 points, up 8.1pc from 2013. In contrast, cereals, dropped 12.5pc from the previous year, buoyed by forecasts of record production and ample inventories.

The FPI is a trade-weighted index that tracks prices of five major food commodity groups on international markets. It aggregates price sub-indices of cereals, meat, dairy products, vegetable oils and sugar.

Four of those indices fell in 2014 and were at, or close to, their lowest levels in five years. All indices were down except for meat

The FAO Cereal Price Index averaged 183.9 points in December, up 0.4pc from November, as wheat prices rose on the back of worries that Russia may restrict exports. However, the increase was capped by the stronger dollar. Moreover, rice prices fell markedly amid abundant export supplies.

2014 was the third consecutive year of falling prices, as all commodity groups, except for

meat, declined

The FAO Vegetable Oil Price Index average declined by 2.4pc to a five-year low of 161 points in December, due mainly to depressed demand for palm oil as a biodiesel feedstock, itself linked to falling global oil prices.

The FAO Dairy Price Index declined by 2.3pc to 174 points, its lowest level since late 2009, as slowing imports by China and Russia left abundant export supplies for international markets. Price declines were greatest for milk powders, butter and cheese.

The FAO Meat Price Index also declined in December, down 1.9pc from the previous month, as a stronger dollar curbed price quotations for beef and mutton from Oceania and pork from Europe.

However, at 204 points, this index is near its monthly all-time highs, and on a full-year basis rose 8.1pc in 2014 from 2013 — the only commodity group to post higher average prices over the year.

The FAO Sugar Price Index dropped 4.8pc to 219 points in December largely because of ample supplies in major producing countries such as Brazil.

Falling crude oil prices — which reduced demand for sugar crops to be converted into ethanol — also weighed on international sugar quotations in December.

Lower crude oil prices spelled bearish price trends for commodities that can be used for biofuels, notably sugar but also palm oil, which has the largest weight inside the vegetable oils index, said FAO’s senior economist Abdolreza Abbassian. “Ample supplies aside, the drop in oil prices obviously makes ethanol production less attractive,” he said.

Courtesy FAO

Published in Dawn, Economic & Business, January 19th , 2015

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