Inputs by Hima Sutha
According to the latest report by the United Nations Food and Agriculture Organization,
food prices worldwide have hit a ten-year high.
The United Nations Food and Agriculture Organization (UN_FAO) uses an FOA Food price index to measure the changes in food prices over time.
What is the FAO Food Price Index
The FAO Food price index measures the change in the food prices worldwide every month from the previous month.
How is it calculated?
It is based on 5 food groups:
A. Cereals
B. Vegetable Oils
C. Dairy
D. Meat
E. Sugar
While these commodities represent about 40 percent of gross agricultural food commodity trade (FAOSTAT), they have been chosen because they are important for global food security and trade. All populations need these food groups to survive and work.
The index is released every month.
Here is how the individual prices are calculated:
A. Cereal Prices
Compiled using the International Grains Council (IGC) Wheat Price Index of 10 quotations, 1 IGC maize quotation, IGC Barley Price Index, one sorghum quotation, and 16 rice quotations. Simple and weighted averages are used to arrive at the final number.
B. Vegetable Oil
Based on 10 quotations for soybean, sunflower, rapeseed, groundnut, cottonseed, copra, palm kernel, palm, linseed and castor oil. Their weighted average is based on how much of each oil was bought and sold from 2014-16.
C. Sugar
Calculated from International Sugar Agreement prices using 2014-16 as base.
D. Meat:
Computed from average export unit values/market prices of bovine (cattle), pig meat, poultry meat and ovine meat, weighted by world average export trade shares for 2014–2016.
E. Dairy
Computed from price quotes for Europe and Oceania (Australian region), based on the trade done in individual categories from 2014-16.
What does the new report say?
According to the new report, the overall price is up by 3.9% from the prices in September, rising for the third consecutive (consecutive means non-stop. This means that prices rose in July, August, and September- 3 months that come after each other, with no gap) month.
It is now the highest rise level recorded since July 2011.
Vegetable oil prices rose by 9.6%, an all-time high, while dairy rose by 2.6%. Cereal prices increased by 3.2% from the previous month due to decreases in harvests in major exporting nations, including Canada, Russia, and the United States. With the reduction in harvests, Canada, Russia, and the United States could not export (send cereal products to other countries), which led to the shortage of the cereal products that could be supplied to the public.
Therefore, with a lower quantity of cereal products available and the demand for the cereal products by the society being the same, the export prices of cereal products increased.
On the contrary, after six sequential monthly increases, sugar prices dipped by 1.8%, with limited global demand by the consumers or society.
Why is this important?
The increase in food prices can be a concern to the poor in developing nations. According to the World Bank, the 2010–2011 food price increases led to an estimated 44 million people being pushed into poverty. Rising food prices could lead to the poor spending more money they earn on food and being left with a smaller fraction of money or consuming food that lacks nutrition.
According to the new report published by the United Nations Food and Agriculture Organization, production, distribution and consumption of all global food requires 33% of the world’s total energy.