FAO reports World Food Price Index drops to a two-year low despite increase in rice prices

The United Nations Food and Agriculture Organization (FAO) has reported that the world price index for food fell in August to its lowest level in two years. This decline comes after a rebound in the previous month, with most food commodities experiencing a decrease in prices, although rice and sugar saw increases. The FAO’s price index, which tracks the most widely traded food commodities, averaged 121.4 points in August, compared to a revised 124.0 for July. The previous month’s index had rebounded from a two-year low in June. The August figure is the lowest since March 2021 and is 24% below the all-time high reached in March 2022 after Russia’s invasion of Ukraine.

The overall drop in the index was due to declines in dairy products, vegetable oils, meat, and cereals, despite a significant increase in the FAO’s rice benchmark to a 15-year high. The increase in rice prices was caused by Indian export restrictions, leading to disruptions in trade and limited availability. The cereal index decreased by 0.7% from July, with wheat prices falling due to northern hemisphere harvests and maize (corn) reaching a nearly three-year low driven by a record crop in Brazil and the upcoming U.S. harvest.

In contrast, the FAO’s sugar index rose by 1.3% in August, reaching 34% above the level of the previous year. This increase was supported by concerns about the impact of the El Nino weather pattern on global sugar production. Vegetable oil prices decreased by 3.1% in August, while dairy prices experienced an eighth consecutive monthly drop of 4%, reflecting ample supply in Oceania and decreased imports by China.

In a separate report on cereal supply and demand, the FAO forecasted world cereal production for this year to be 2.815 billion tonnes, slightly lower than the previous estimate of 2.819 billion tonnes. However, this forecast still represents a 0.9% increase compared to 2022 and matches the record output from 2021. The downward revision is mainly due to reduced projected wheat output caused by dry weather affecting Canada and the European Union, as well as heavy rain affecting Chinese crops.

Overall, the FAO’s report indicates a decrease in food prices, driven by declines in most food commodities but offset by increases in rice and sugar. These price movements have implications for global food markets and supply and demand dynamics.