What is the Reason for Drop in Global Food Prices?

The United Nations Food and Agriculture Organization (FAO), which records monthly changes in global prices of commonly traded food commodities, reports a drop in food prices in December as vegetable oils and sugar take a pounding. 

"While normally high prices are expected to lead to increased production," says FAO senior economist Abdolreza Abbassian, "the high cost of inputs, the ongoing global pandemic, and ever more uncertain climatic conditions leave little room for optimism about a return to more stable market conditions even in 2022." 

Within the last month, the dairy sub-index alone posted a month-to-month rise. In December, the FAO Food Price Index averaged 133.7 factors, a 0.9 percent drop from November but 23.1 percent increase from December 2020. 

For 2021 as an entire the index averaged 125.7 factors, about 28.1% above the earlier year. 

Cereal and oil Indexes Do Well in General 

The FAO Cereal Price Index fell 0.6 percent from November as lower wheat exports offset higher maize prices due to good harvests in the southern hemisphere. These prices are supported by strong demand and concerns about Brazil's ongoing dryness. 

Diverse and well-connected agri-food programs are better equipped to absorb unexpected shocks like COVID-19 and ensure food supply, according to the FAO, which recently advised falling wheat exports to balance rising maize prices. 

However, the Cereal Price Index reached its highest annual level since 2012, averaged 27.2 percent higher than in 2020. 

Maize is up 44.1 percent, wheat is up 31.3 percent, while rice is down by 4%.

The index of food commodity prices in foreign markets grew for the fourth month in a row in November, led by strong demand for wheat and dairy products. 

The FAO Vegetable Oil Price Index fell 3.3 percent in December, owing to decreased palm oil and sunflower oil quotations. Prices reflect weak worldwide import demand, which has been connected to concerns about the impact of increased COVID-19 cases. 

The FAO Vegetable Oil Price Index for 2021 as a whole set an all-time high, increasing 65.8 percent from 2020. 

Sugar, meat, and dairy indices Reaches New Highs 

The FAO Sugar Price Index fell for the seventh month in a row with a 3.1% decrease. Concerns about the potential impact of the Omicron COVID-19 variant, a weaker Brazilian Real, and reduced ethanol prices have been suggested as probable causes, according to the FAO. 

The FAO Sugar Price Index increased 29.8 percent over the previous year in 2021 to its highest level since 2016. 

In December, the FAO Meat Price Index remained unchanged. This index was 12.7 percent higher in 2021 overall than in 2020. In November, global food trade accelerated and was on track to set new records in both volume and value. 

The FAO Dairy Price Index was the only sub-index to rise in December, up by 1.8 percent over the previous month.

International butter and milk powder prices rose due to decreasing milk output in Western Europe and Oceania, accounting for the sub-index rise. This indicator was 16.9 percent higher on average than in 2020. 

Prices for cheese fell somewhat, reflecting a preference for Western European dairy producers. 

Global food commodity prices declined for the second month in a row in July 2021. The July drop reflected a decline in the quotations for most cereals and vegetable oils as well as dairy products.