Global food prices rise sharply in August as FAO cuts estimates for world cereal production

GLOBAL – After easing in the previous two months, the Food and Agriculture Organization (FAO) food price index rose 3.1% in August to near a peak set in May reviving concerns about inflationary pressures. 

According to the FAO, the rising prices were driven by reduced grain production expectations, frosts that hurt sugar-cane crops in top grower Brazil, and tightening oilseed supplies. 

Food supply chains have also been affected by a shortage of workers amid the coronavirus pandemic and higher shipping costs. 

Lower harvest expectations in several major exporting countries shunting up world wheat prices by 8.8% month-on-month, while barely surged 9.0%. 

FAO’s sugar index rose 9.6% percent from July, pushed up by concerns over frost damage to crops in Brazil, the world’s largest sugar exporter.  

The organization notes that prices for sugar could have even been higher but good production prospects in India and the European Union helped mitigate these to a degree. 

Sugar, Oil, and Meat indexes rise 

Vegetable oil prices rose 6.7%, with palm oil prices hitting historic highs due to continued concerns over production levels and resulting inventory drawdowns in Malaysia. 

Meat prices also edged up slightly in August, as strong purchases from China supported ovine and bovine meat prices and solid import demand from East Asia and the Middle East lifted poultry prices, FAO said. 

The only silver lining was that prices of dairy declined, reflecting the continued weakness in global import demand for spot supplies combined with seasonally rising export availabilities in Oceania during the new production season 

Maize also registered a slight decline of 1.3 points (0.9 percent) driven by improved production prospects in Argentina, the EU, and Ukraine. 

FAO cuts cereal production estimates 

Moving into September, food prices are expected to maintain the upward trajectory as persistent drought conditions in several major producing countries force the FAO to cut its estimate for world cereal production

Among the major cereals, the forecast for wheat production saw the biggest downward revision — down 15.2 million tonnes since July to 769.5 million tonnes —  mainly due to adverse weather conditions in the United States, Canada, Kazakhstan and Russia. 

The forecast for global barley production in 2021 has also been trimmed by 6 million tonnes on lower yield expectations in the USA and Canada.  

FAO’s forecast of global rice production in 2021 has undergone a 400 000 tonne downward revision since July to 519 million tonnes (milled basis) due to more pronounced area reductions than previously foreseen in Japan and the USA. 

Maize production forecasts have been raised for Argentina, the European Union and Ukraine as continued conducive weather has bolstered yield prospects. 

The lowered cereal forecasts and the rising food prices are now increasing inflation risks for central banks as well as consumers, particularly those in poorer nations that are dependent on imports.  

Abdolreza Abbassian, a senior economist at the Rome-based FAO, now only hopes for a good weather to help tame the rising food prices. 

“We will need very good weather” going into next season, Abbassian says. “If anything on the supply side fails to meet expectations, we could stay in this high-price situation for much longer.” 

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