Boosted supply of food staples pushes prices down: UN

ROME - Increasing supplies of major food staples such as cereals have led to a “sharp decline” in prices during the first half of the year, but the cost of food remains some 69 percent higher than in 2002-04, a United Nations report said Thursday.

In addition, the high prices of non-cereal products have still kept food import bills high, especially in developing countries, the Rome-based Food and Agriculture Organisation (FA0) said.

The FAO Food Price Index averaged 164 points in May 2010, down from 174 points in January and substantially less than its peak of 214 in the spring of 2008, FAO’s Food Outlook report noted.

A fall in the international prices of cereals and sugar was among the main drivers behind the decline.

Sugar prices have tumbled by half from their peak at the beginning of the year, among expectations of significant production increases.

Most indicators point to a boost in world supplies, a leading factor behind the sharp declines in the international prices of major food staples in 2010.

“The 2008-09 food prices boom spurred plantings and production of many crops, which has resulted in a recovery in inventories and boosting stocks-to-use ratios, a tendency likely to prevail also in 2010-11,” the report said.

The Food Outlook also provided first forecasts for cereal trade, stocks and utilisation in the coming season, saying that world production in 2010 is likely to match the record achieved in 2008.

The growth in production may not be confined to exporters only, as many importing countries are also expected to harvest bumper crops.

Despite price decreases, the global cost of imported foodstuffs is set to reach $921 billion in 2010, some $100 billion - or 11 percent - more than in 2009.

That still remains short of the record mark of $1 trillion set in 2008, when the food price crisis was at its peak.

Much of the anticipated increase will be fuelled by higher expenditures on non-cereal products, which could rise by as much as 17 percent to $650 billion, or around two-thirds of global food import expenditures, the FAO reported.

Dairy products, vegetable oils and sugar are among the foodstuffs expected to drive bills higher, through a combination of higher import volumes and prices.

Expenditures on these imported commodities are forecast to surpass or near the record levels witnessed in 2008.

Rising freight costs are another factor spurring food import bills, the Food Outlook noted. Indicators of freight rate movements are running around 75 percent higher this year, compared to 2009.

As a result, the cost of purchasing food on the international marketplace for the most economically vulnerable groups - which the FAO classifies as the Least Developed Countries and Low Income Food Deficit Countries - is set to rise on the order of 10 and 14 percent, respectively, from 2009.