Price of food on a steep upward trend

Grain price hike may complicate matters for meat producers

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The world may be driven into a new food crisis, if countries start to resort to export bans, the UN’s food agency warned in connection with its Thursday report on the development of food prices.
      In July, the price index of foodstuffs rose by 6% compared with June.
      According to the United Nations Food and Agriculture Organisation FAO’s monthly index update, the FAO Food Price Index, which is the measure of a monthly price change for a food basket of cereals, oilseeds, dairy, meat and sugar averaged 213 points in July against 201 points in June.
     
The price of food has gone up due to lousy weather conditions in various parts of the world.
      Owing to the severe drought and the consequent bad harvest predictions in the United States, the price of corn shot up by 23 per cent in July.
      The prices of wheat and sugar went up by nearly 19 and 12 per cent respectively.
      According to the FAO economists, the rise in food prices is likely to continue.
     
The FAO Food Price Index (FFPI) reached its all-time highest peak of 238 points in February 2011.
      The drought and weak harvest outlook in the Black Sea area have raised suspicions that for example Russia might reintroduce a ban on the export of grain.
      The previous such ban lasted for a year and ended in July 2011.
      Speculation has caused grain futures to gain momentum in the commodities markets. The future markets calmed down somewhat after Russian officials’ comments on Wednesday, according to which the country would not be imposing a grain export ban this year.
     
In Finland the changes in the world market prices of food manifest themselves only slowly, for the share of raw material prices in the consumer prices of foodstuff is fairly small.
      That said, the production cost of meat is quickly affected by a rise in the price of feed grain.
      This could complicate matters for the producers, if they have signed long-term contracts with the retail sector, says research director Perttu Pyykkönen of the Pellervo Economic Research Institute (PTT).
     
In the spring PTT predicted that the price of meat would go up by five per cent this year, and the price of food in general by 3.5 per cent.
      According to Pyykkönen, these estimates will be checked in the autumn and corrected upwards.
      Last month MTT Agrifood Research Finland estimated that the price of food would rise by six per cent this year and the price of meat even more steeply than this.


Previously in HS International Edition:
  VAT on food could rise to 17 per cent (15.3.2012)

See also:
  Poor grain harvest could lead to increase in meat and milk prices (7.9.2011)

Links:
  FAO Food Price Index: Unfavourable weather behind the July rebound of the FAO Food Price Index (9.8.2012)

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