FAO: Ukraine-Russia tensions and poor weather lead to sharp rise in food prices

The FAO Food Price Index​ rose sharply to a 10 month high of 212.8 in March as a combination of geopolitical tension over Crimea and poor weather conditions in North and South American regions led to a 2.3% increase.

The Index, which is based on the prices of a basket of internationally-traded food commodities, saw prices increase in all groups except dairy, which fell for the first time in four months (down by 2.5%). The greatest of these gains were seen in sugar (up by 7.9%) and cereals (plus 5.2%).

"The Index was influenced, as expected, by unfavourable weather conditions in the US and Brazil and geopolitical tensions in the Black Sea region,"​ said Abdolreza Abbassian, FAO Senior Economist.

The FAO data is comes together with a G-20 Agricultural Market Information System (AMIS) Market Monitor​ report, which assesses the major influencers of price changes in greater detail – something that Abbassian suggested has played an important role in reassuring international markets, by promoting close dialogue among its participating countries.

"The Food Price Index looks at March trends. Since then, the initial fear over disruptions in grain shipments from Ukraine has subsided,”​ he said. “Also, markets have started to discard any negative impacts that the current difficult domestic economic conditions may bear on plantings or harvests in 2014.” ​

Index breakdown​

The FAO said its Cereal Price Index averaged at 205.8 points in March, up as much as 10 points from February. Prices for wheat and maize surged and imports were strong amid concerns over the effects of dry weather conditions on winter wheat in the United States, unfavourable weather in Brazil, and tensions in Ukraine and the Black Sea region.

Meanwhile, the Vegetable Oil Price Index averaged 204.8 points in March, up 7 points from February and the highest level seen in 18 months. The FAO said such a rise mainly reflected a surge in palm oil, and continued concerns over the impact of protracted dry weather in Southeast Asia.

For dairy, the Price Index averaged 268.5 points last month, said the FAO, who reported a fall of 6.9 points as purchases by China declined and uncertainty over trade with the Russian Federation continued. Good production in New Zealand and the northern hemisphere also influenced prices, said the report.

Sugar prices increased by 18.5 points – with an Index score of 253.9 - amid concerns of declining availability from Brazil and Thailand, due to drought and reduced sugarcane output, respectively.

The potential impact of El Niño conditions later this year also contributed to the price surge, said the FAO.

Weather also played a key role in a 2.7 point increase in meat prices, with higher beef prices due to dry weather conditions affecting production in both Australia and the United States.