Global index drops after 8 months of price spikes

Driven by softening sugar, cereals and oil rates, the global food price index dropped for the first time in March after eight months of continuous price spikes, said Food and Agriculture Organisation (FAO) of the United Nations.

However food prices, particularly of cereals, are likely to remain steady during 2011-12 due to insufficient stocks.

The index averaged 230 points in March 2011, down 2.9 per cent from its peak in February, but still 37 per cent above March of last year, FAO said. International prices of oil and sugar dropped the most, followed by cereals. By contrast, dairy and meat prices were up, although only marginally in the case of meat.

“The decrease in the overall index this month brings some welcome respite from the steady increases seen over the last eight months,” said David Hallam, director of FAO’s Trade and Market Division. “But it will be premature to conclude this is a reversal of the upward trend,” he added. FAO said while most indications point to increased cereal production in 2011, the projected growth might not be sufficient to replenish inventories, in which case prices could remain firm throughout 2011/12.

“We need to see the information on new plantings over the next few weeks to get an idea of future production levels. But low stock levels, the implications for oil prices of events in West Asia and North Africa and the effects of the destruction in Japan all make for continuing uncertainty and price volatility over the coming months,” said Hallam.