World food prices jumped in May by nearly 40% compared to the same period last year, reaching their highest value since more than a decade, the Food and Agriculture Organization of the United Nations (FAO) has warned. The FAO Food Price Index, which measures monthly changes in international prices of a basket of food commodities, averaged 127.1 points in May. This is an increase of 5.8 points or 4.8% compared to April and the sharpest month-on-month increase since October 2010, the UN body said last Thursday. Food prices rose for the twelfth consecutive month in a row to its highest value since September 2011, bringing the Index only 7.6% below its peak value of 137.6 points registered in February 2011. The prices for the average of five main commodity groups (cereals, oilseeds, dairy products, meat and sugar) were 39.7% higher than in May 2020 and the index climbed by 36.1 points compared with a year ago. Increasing demand for cereals in China along with an ongoing drought in Brazil and growing demand for vegetable oil for biodiesel are blamed for the soaring prices. “China has continued to buy, but with Brazil’s drought proving to be more severe than expected, everyone has to pray that the weather in the US is going to be good,” Abdolreza Abbassian, senior economist at FAO, told the Financial Times.

Soaring food prices will especially hit low- and middle-income countries which depend on food imports. People in poorer countries who already spend a large share of their income on food and are struggling with rising food insecurity due to the COVID-19 pandemic and weather uncertainties, could be hit hard by exploding food prices. “We are not in the situation we were back in 2008-10 when inventories were really low and a lot of things were going on,” Abbassian told Bloomberg. “However, we are in sort of a borderline. It’s a borderline that needs to be monitored very closely over the next few weeks, because weather is either going to really make it or create really big problems,” he is quoted by Bloomberg. According to Abbassian, “any of those things could push prices up further than they are now, and then we could start getting worried.”

With respect to the different commodities the FAO Food Price Index consists of, the largest month-to-month increase was registered for vegetable oil. This index increased by 7.8% in May compared to the previous month, mainly reflecting rising palm, soy and rapeseed oil quotations. “Palm oil prices rose due to slow production growth in Southeast Asian countries, while prospects of robust global demand, especially from the biodiesel sector, drove soyoil prices higher,” FAO said in a press release. The FAO Sugar Price Index increased by 6.8% from April. This was mostly related to harvest delays and concerns over reduced crop yields in Brazil, the world’s largest sugar exporter. However, large export volumes from India contributed to easing the price surge. The FAO Cereal Price Index increased 6% from April. Among the major cereals, international maize prices rose the most, increasing by 8% compared to April. International maize prices averaged 89.9% above their value in May 2020, reaching their highest level since January 2013. Meat prices increased by 2.2% from April, with quotations for all meat types rising due to a faster pace of import purchases by China, as well as rising internal demand for poultry and pig meats in the leading producing regions. The Dairy Price Index rose by 1.8% in May.

FAO also published its first forecast for world cereal production in 2021. According to the latest Cereal Supply and Demand Brief, current prospects for world cereal production point to the third moderate growth in a row. World cereal output in 2021 is projected to reach a new record of 2,821 million tonnes, up 1.9% compared to 2020. World cereal utilization in 2021/22 is predicted to expand by 1.7% to 2,826 million tonnes. “Total cereal food consumption is forecast to rise in tandem with world population, while an increased use of wheat for animal feed is also anticipated,” FAO said. Based on those forecasts, world cereal stocks at the close of crop seasons in 2021/22 are anticipated to increase by 0.3% to 811 million tonnes. FAO’s first forecast for world trade in cereals in the new season also indicates also an increase of 0.3% from the high level estimated for 2020/21, when trade is expected to expand by as much as 6.3 percent to a peak level of 468 million tonnes. However, much will depend on the volume of cereals to be imported by China. (ab)