Food Prices Drop The Most in 7 Years - One Positive Result Of The Global Financial Turmoil

A glut in food supplies from grains to milk…and concern that China’s slowing economy will curb demand sent global food prices down the most in almost seven years.

An index of 73 food prices fell 5.2 percent in August, the most since December 2008, to 155.7, the United Nations’ Food & Agriculture Organization wrote in a report Thursday. The slide will cut the food bill for importers such as Egypt, said Abdolreza Abbassian, a senior economist at the FAO.

Years of surplus production and record grain harvests swelled global food reserves and reduced prices by 35 percent since a record high in 2011. The shift is a dramatic turnaround from four years ago, when food costs were soaring and contributed to civil unrest across the Middle East and Africa, helping to topple governments in Tunisia and Egypt.

“This is a deflationary period from a food point of view,” Abbassian said by phone from Rome. “In real terms, we’re not much higher than we were at the start of the century. Quite a striking divergence from what people were expecting a few years ago.”

Downward pressure on food prices will continue until well into 2016, Abbassian said. Wheat supplies are abundant, with larger-than-anticipated harvests in the northern hemisphere. Falling energy costs and concerns about China’s economic slowdown also helped reduce food prices, according to the FAO.

“The food bill will go down,” he said. “You need quite a sharp decline in future production to get some sustained support for prices. Right now indications are for the reverse.”

Countries that import food invested in agriculture when prices were high, and that’s adding to the increased production. Brazil’s falling real and China’s agricultural subsidies are helping farmers sustain production even as prices for dollar-denominated commodities fall. Producers in Russia and Ukraine are continuing to plant grains due to a lack of alternatives, Abbassian said.

The FAO index of global food includes prices for grain, meat, dairy, edible oils and sugar. The gauge has now fallen for 10 months in the longest slide since 1998.

An index of grain prices fell 7 percent to a five-year low. The FAO raised its outlook for global wheat and coarse grain production in 2015-16 on larger harvests for South American corn and European wheat.

Dairy product costs slumped 9.1 percent to the lowest in six years on limited import demand from China and ample supplies. A sugar index fell 10 percent to the lowest since 2007 as a weaker Brazilian real encouraged more outbound shipments and on expectations that India will become a net exporter of the sweetener.

Vegetable oil prices fell 8.6 percent to a six-year low on slowing import demand for palm oil in India and China.

(Edited from Bloomberg Business)