Local food prices in Nigeria may have increased in reaction to panic buying as millions prepared for movement restrictions, however, international world food prices declined sharply in March, driven mostly by demand-side contractions linked to the effects of the COVID-19 pandemic. Added to this, the drop in global oil prices due mostly to expectations of economic slowdown as governments roll out restrictions designed to respond to the health crisis.
The FAO Food Price Index, which tracks monthly changes in the international prices of commonly traded food commodities, averaged 172.2 points during the month, down 4.3 percent from February.
“The price drops are largely driven by demand factors, not supply, and the demand factors are influenced by ever-more deteriorating economic prospects,” said Abdolreza Abbassian, FAO senior economist.
The FAO Sugar Price Index posted the biggest drop, down 19.1 percent from the previous month. Causes include lower demand from out-of-home consumption linked to the confinement measures imposed by many countries, and lower demand from ethanol producers due to the steep fall in crude oil prices.
The FAO Vegetable Oil Price Index declined 12 percent, mainly stemming from falling palm oil prices linked to the plunge in crude mineral oil prices and rising uncertainties over the pandemic’s impact on vegetable oil markets worldwide. Soy and rapeseed oil prices followed the trend.
“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 Peter Thoenes, an FAO analyst.
The FAO Dairy Price Index fell by 3 percent, driven by declining quotations and global import demand for skim and whole milk powders, due largely to disruptions in the dairy supply chains because of the containment measures aimed at controlling the spread of COVID-19.
The FAO Cereal Price Index in March declined 1.9 percent from February and stood at nearly its level of March 2019. International wheat prices declined, as the effects of large global supplies and broadly favorable crop prospects outweighed those of increased import demand from North Africa and some small export limitations imposed by the Russian Federation. Maize prices also declined due to both large supplies and much weaker demand from the biofuel sector.
International rice prices, by contrast, rose for the third consecutive month, with Indica quotations buoyed by stockpiling spurred by concerns over the pandemic and reports that Vietnam might introduce export bans – which the government has since downplayed.
The FAO Meat Price Index fell by 0.6 percent, led by drops in international quotations for ovine and bovine meats, for which export availabilities are large and trade capacity dampened by logistic bottlenecks. But pig meat quotations rose amid surging global demand and as processing facilities were hampered by the restrictions on the movement of workers.