Food prices slump most since 2015 as virus hits demand

Bloomberg

The global economic slowdown is causing the biggest drop in food prices since 2015 as demand shrinks for everything from dairy to sugar.
The FAO Food Price Index, a global gauge of prices, dropped 4.3% in March, the United Nations’ Food & Agriculture Organisation said. That’s the steepest decline since August 2015. Food costs fell as government restrictions on freedom of movement exacerbated demand destruction for oil, which pressures biofuels consumption. Biofuels are a key source of demand for sugar and vegetable oils.
“The price drops are largely driven by demand factors, not supply, and the demand factors are influenced by ever-more deteriorating economic prospects,” FAO Senior Economist Abdolreza Abbassian said in a statement.
The Rome-based FAO, whose index works as an indicator of potential food security concerns for developing countries, said it’s closely monitoring prices and logistical issues for any potential supply-chain disruptions caused by the pandemic.
The steepest declines were seen in sugar prices, which fell 19% from February, as fewer people consumed the sweetener out of home and as lower crude oil prices curbed demand from the ethanol sector.
“Oil prices have fallen by more than half during the past month, which catalyzes a large downward impact on biofuels, which are an important source of demand in the markets for sugar and vegetable oils,” said FAO analyst Peter Thoenes.
The vegetable oils index fell 12% as it was hit by crude’s 66% plunge over the past three months and rising uncertainties over the impact of the coronavirus on global demand for commodities. Meat and dairy prices also dropped.
Grains, the main component of the FAO food price index, declined 1.9%, partly thanks to “balanced and comfortable” supplies, even as the coronavirus hampered shipping and transportation in some regions, the UN agency said. In contrast, rice prices climbed for a third month boosted by stockpiling efforts.
“While localised disruptions, largely due to logistical issues, pose challenges to food supply chains in some markets, their anticipated duration and magnitude are unlikely to have a significant effect on global food markets,” the FAO said.