FAO Food Price Index rises in March

• World food commodity prices rose in March for the second month in a row, due largely to higher energy prices linked to the conflict escalation in the Near East, according to the Food and Agriculture Organisation of the United Nations (FAO) Food Price Index.

• The FAO Food Price Index averaged 128.5 points in March, up by 2.4 per cent from February and 1 per cent above its level a year ago. 

• The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices weighted by the average export shares of each of the groups over 2014-2016.

• FAO Chief Economist Maximo Torero said that if the conflict stretches beyond 40 days with high input costs with current low margins, farmers will have to choose: farm the same with fewer inputs, plant less, or switch to less intensive fertilizer crops. Those choices will hit future yields and shape our food supply and commodity prices for the rest of this year and all of the next.

Highlights of FAO Food Price Index in March:

• The FAO Cereal Price Index increased by 1.5 per cent from the previous month, driven primarily by higher world wheat prices, which rose 4.3 per cent due to drought-related deterioration of crop prospects in the United States  and expectations of reduced plantings in Australia due to higher fertilizer costs.

• The FAO Vegetable Oil Price Index increased by 5.1 per cent from February to stand 13.2 per cent higher than its year-earlier level.

• The FAO Meat Price Index increased by 1 per cent from the previous month, driven by a surge in pig meat prices in the European Union ahead of strengthening seasonal demand, along with higher world bovine meat prices, particularly in Brazil, where exportable supplies were curtailed by tightening cattle availability.

• The FAO Dairy Price Index increased by 1.2 per cent, driven primarily by higher quotations for milk powders amid a seasonal decline in supplies in Oceania.

• The FAO Sugar Price Index increased by 7.2 per cent in March. Rising expectations that Brazil, the main sugar exporter, would use more sugarcane to produce ethanol to counter higher international crude oil prices overweighed a generally favourable global supply outlook for the current season, supported by good harvest progress in India and Thailand.

• The escalation of conflict in the Near East, with associated higher energy and fertilizer prices and disruptions to production and supply chain routes, as well as the prospect of some farmers shifting towards less fertilizer-intensive crops, has introduced additional uncertainty into the outlook for wheat and maize.