Food prices increase to its highest in six months

According to the United Nations’ Food & Agriculture Organization, world food prices in September reached its six-month high as dairy and meat producers passed on higher feed costs to consumers.

The Rome-based agency announced on its website today that an index of 55 food items tracked by the FAO increased to 215.8 points from a restated 212.8 points in August. Dairy costs rose the most in more than two years.

Abdolreza Abbassian, an economist at the FAO in the Italian capital, noted that livestock breeders and dairy farmers are passing on the higher cost of feed, after grain prices rose in June and July. Higher food prices don’t mean a food crisis is imminent because, despite a very difficult market, the basic conditions that suggest a food crisis are just not there. Abbassian revealed that market sentiment is now seeing high prices more as a rule than as an exception.

The figures indicated that the FAO dairy-price index rose 6.9 percent to 187.7 points from 175.6 in August, the biggest advance since April 2010. The index for meat prices increased 2.1 percent to 175, growing for a second month.

The world cereal-price index increased to 262.6 points from 259.9 points the previous month and reached its highest level since April last year. The index for grain prices in July jumped 17 percent, the biggest increase since February 2008.

Abbassian said this was not surprising for both meat and dairy, since there is a lag with this big growth in input cost from the grain sector. According to him, there will be a limit to how much it rises. Moreover, it remains an issue how much prices can be increased without consumers reducing consumption.

U.S. Class III milk futures gained 5.6 percent in Chicago last month after hiking 7.9 percent in August, increasing for a fifth month. They have grown by 23 percent since the start of the year.

According to Director- General Jose Graziano da Silva, the FAO had no reason to expect a food crisis. He said that last month, after food prices were stabilized following a 6.2 percent increase in July, the biggest gain since November 2009. The food index last month marked a little fluctuation and has declined from a record 237.9 points in February 2011.

High food costs last year were one of the reasons for the civil unrest across the Middle East and North Africa, bringing down governments in Tunisia and Egypt. According to the U.S. State Department, growing food prices caused more than 60 riots worldwide from 2007 to 2009.

Abbassian commented that costs are going up, and for some of the poorer countries this is always an issue. He added that domestic prices have not increased anywhere as fast as in international markets.

The agency wrote in a separate statement today that the FAO predicts that world grain production will drop to 2.29 billion metric tons this year from 2.35 billion tons in 2011, reducing its forecast by 8.8 million tons from a month ago on lower output of coarse grains.

Abbassian noted that the cereal situation appears to have become more predictable than it was over the summer period, which could result in less instability in cereals in coming weeks.