April 7, 2011

Global Food Prices Dip Slightly In March

After unrest in the Arab world and Japan's natural disasters, new increases in food prices are in sight as demand grows and supplies tighten, reports the UN Food and Agriculture Organization (FAO), even as global food prices began moving downward from record highs in March.

Food prices became an increasingly urgent topic of discussion in international politics after contributing to protests that are spreading across North Africa and the Middle East and which was a leading factor in regime change in Egypt and Tunisia.

The FAO Food Price Index, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, averaged 229.8 points in March, down from February's record of 236.8 points, dropping after eight solid months of increases.

David Hallam, director of FAO's Trade and Market Division, told Reuters, "The decrease in the overall index this month brings some welcome respite from the steady increases seen over the last eight months. But it would be premature to conclude that this is a reversal of the upward trend."

Rice prices fell, along with a variety of key staples such as oils, sugar and cereals as a result of abundant supply in exporting countries and sluggish import demand. By contrast, dairy and meat prices were up, although only marginally in the case of meat, reports AFP.

"We need to see the information on new plantings over the next few weeks to get an idea of future production levels. But low stock levels, the implications for oil prices of events in the Middle East and North Africa and... Japan all make for continuing uncertainty and price volatility over the coming months," Hallam said.

Price dips were largely driven by disruptions to large-scale grain importers with the political unrest while demand and supply have not improved, Hallman continued.

"We believe that in the next few weeks, and there are already signs of it, prices will rebound," says Concepcion Calpe, FAO's senior economist. Political instability in North Africa and the Middle East, which affects grain import decisions in the area, would influence already volatile grain markets, while soaring oil prices would fuel further rises, the FAO said.

A tighter monetary policy is expected in the United States with the end of a second round of monetary easing expected, analysts say, hopefully easing agricultural commodity prices. "In the next 2-3 months, a lot will depend on the Fed policy given that its current plan expires," Antonio Cesarano, head of market strategy at Italy's MPS Capital Services, told Reuters.

"If it (the tightening of US monetary policy) will be the case, then, in the short term less liquidity available could mitigate rises in commodity prices. But the long-term trend is seen bullish mostly due to rising demand, especially in emerging markets," Cesarano concluded.


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