The UN’s Food Prices Index has fallen for the fifth month in a row, in a sign that one of the main pressures pushing up the cost of living around the world could ease.

The index fell to 138 in August and is now lower than it was before Russia’s invasion of Ukraine. The countries were both major exporters of crops including sunflower oil, corn and wheat.

The UN’s Food and Agricultural Organisation noted that July’s UN backed deal to re-open Ukrainian ports has eased cereal and vegetable oil prices. That means more supplies have been able to reach international markets.

According the FAO, “prices came down for a mix of reasons”. It explained that cereals have been the main driver of this year’s growth in food prices, adding that supplies are now increasing because “the harvest looks a little bit better, especially in Canada, the US and Russia”- All three are major exporters of wheat.

However, the United Nation’s Food and Agricultural Organisation indicated that more needs to be done to reduce food prices.

“An easing of export restrictions helped bring down sugar and oil prices, and weaker demand for certain products helped bring down meat and dairy prices.”
FAO

Moreover, FAO added that Indonesia’s temporary reduction in export taxes on palm oil has meant food manufacturers have had more options for the vegetable oils they use in huge quantities.

Food Driving inflation

The cost of food has been one of the biggest contributors to inflation around the world. This week, the Eurozone reported inflation was running at an annualised rate of 9.1% in August. Energy was the biggest contributor with increases of 38.3% but unprocessed food was next at 10.9%. The situation is worse in Ghana as inflation rate in the West African nation currently stands at 31.7 percent. The most recent inflation figures from the UK and the US also paint a similar picture.

The FAO index, a closely watched barometer, also showed that there were falls in the cost of its other food categories such as: dairy, meat and sugar. It said beef and other bovine product prices “declined on weak domestic demand in some leading exporting countries”, perhaps reflecting that consumers are switching to cheaper alternatives.

According to Kona Haque, head of research at the agricultural commodities firm ED&F, “Growing concerns of a recession have led to fears that demand for foods like corn, meat, vegetable oils and other products will fall”.

However, because of ongoing supply chain problems and the time it takes for price change to filter through, Ms Haque noted that not all countries will feel the benefit of these lower prices immediately.

The FAO index has fallen sharply from March’s record high of 159.7 but remains 10 points above where it was a year ago. Price volatility has increased according to Ms Haque, who cited recent heatwaves in Europe and floods in Pakistan as examples of the increasing influence of extreme weather on crops prices.