The dwindling demand for and subsequent fall in the prices of crude oil due to the global upsurge of the coronavirus pandemic drove down international prices for major food commodities, a recent report by the Food and Agriculture Organisation Food Price Index (FFPI) of the United Nations, has said.
The index measures, monitors and tracks monthly changes in the international prices of commonly traded food commodities.
The report, released April 2, has shown that the FFPI averaged 172.2 points in March, down by 7.8 points, or 4.3 per cent from February, although still 4.6 points (2.7 per cent) higher than March last year.
However, the sharp decline in March was said to mark the second month-on-month drop in the value of the FFPI, largely driven by COVID-19 pandemic– demand contractions.
According to the report, the recent fall in prices was not pronounced for vegetable oils and sugar, while other sub-indices were said to have registered lower values in March.
“World food prices declined sharply in March, driven mostly by demand-side contractions linked to the effects of the COVID-19 pandemic and the drop in global oil prices due mostly to expectations of economic slowdown as governments roll out restrictions designed to respond to the health crisis,” the report reads.
According to Abdolreza Abbassian, the FAO senior economist, the price drops are largely driven by demand factors, not supply, and the demand factors are influenced by ever-more deteriorating economic prospects.
The report also said the sugar price index recorded the biggest drop, falling 19.1 per cent from the previous month.
It said the fall was caused by lower demand from out-of-home consumption tied to the confinement measures imposed by many countries, as well as lower demand from ethanol producers due to the high fall in crude oil prices.
“FAO Sugar Price Index posted the biggest drop, down 19.1 per cent from the previous month. Causes include lower demand from out-of-home consumption linked to the confinement measures imposed by many countries, and lower demand from ethanol producers due to the steep fall in crude oil prices,” the report explained.
Vegetable oil, dairy, cereal, others
Also, the FAO Vegetable Oil Price Index declined 12.0 per cent in one month, mainly stemming from falling palm oil prices linked to the plunge in crude mineral oil prices and rising uncertainties over the pandemic’s impact on vegetable oil markets worldwide. Soy and rapeseed oil prices were reported to have followed the trend.
An FAO analyst, Peter Thoenes, said “oil prices have fallen by more than half during the past month, which catalyses a large downward impact on biofuels, which are an important source of demand in the markets for sugar and vegetable oils”.
The report says Dairy Price Index fell by 3.0 per cent, driven by declining quotations and global import demand for skim and whole milk powders, due largely to disruptions in the dairy supply chains because of the containment measures aimed at controlling COVID-19.
In a similar manner, according to the FFPI report, the FAO Cereal Price Index in March declined 1.9 per cent from February which stood at nearly its level of March 2019.
However, the international wheat prices declined, due to the effects of large global supplies and broadly favorable crop prospects that outweighed those of increased import demand from North Africa and some small export limitations imposed by the Russian Federation.
Also, maize prices declined as a result of both large supplies and much weaker demand from the biofuel sector.
In contrast, the international prices of rice rose for the third consecutive month, with Indica quotations buoyed by stockpiling spurred by concerns over the pandemic and reports that Vietnam might introduce export bans – which the government has since downplayed.
The report says the Meat Price Index fell by 0.6 per cent, due to drops in international quotations for ovine and bovine meats, for which export availability is large and trade capacity dampened by logistic bottlenecks.
However, it said pig meat quotations rose amid surging global demand and as processing facilities were hampered by the restrictions on the movement of workers.
Meanwhile, Qu Dongyu, FAO Director- General, during the G20 Summit meeting held last week, reportedly told national leaders “to make sure that agricultural trade continues to play its important role in contributing to global food security and to avoid policies that stymie trade flows which underpins the food-supply systems.”
He said the FAO is closely monitoring prices and logistical issues for food commodities “with an eye to alerting countries of emerging problems that could exacerbate potential disruptions during the pandemic”.