FAO food price index drops further, driven by sugar price fall

The latest Food and Agricultural Organisation (FAO) food price index for March has shown that the index declined by 1.5 percent from February and 18.7 percent below its level a year earlier driven by the sharp slide in sugar price.

A sharp fall in the price index for sugar – which reached its lowest level since February 2009 – together with dipping prices for vegetable oils, cereals and meat, more than offset a rise in dairy prices and contributed to the lower index, which in March averaged 173.8 points.

The FAO Food Price Index is a trade-weighted index that tracks prices of five major food commodity groups on international markets. It aggregates the price sub-indices of cereals, meat, dairy products, vegetable oils and sugar.

Food prices have fallen to their lowest in more than four years, pressed by improving ideas on grain supplies and a drop in sugar values to their lowest since 2009, the United Nations said earlier.

According to the FAO, the fall is as a result of excess supply due to improved production prospects in major sugar producing countries, particularly Brazil – the largest sugar producer and exporter and the continued weakening of the Brazilian currency (Real) against the U.S.

Dollar which dropped by more than 10 percent over the period under review has pushed down prices of most food commodities in the international market.

“Nigeria still spends over N450 billion on food imports”, said Chairman, Agric Group, Lagos Chamber of Commerce and Industry (LCCI), Wale Oyekoya, while addressing a press conference on Wednesday.

The FAO report also stated that the Sugar Price Index for March averaged 187.9 points, down 9.2 percent from February. This was mainly due to improved crop prospects but also the continued weakening of the Brazilian currency against the US dollar, which is supportive to exports.

The FAO in a statement last month said the February decline reflected in part “the continued weakening of the Brazilian currency against the dollar, and the announcement by India that it will grant an export subsidy to boost sugar sales abroad, have further contributed to the fall in international sugar quotations”.

The index has been on a downward path since April 2014.

The Vegetable Oil Price Index was down by 3.1 percent, driven by a fall in prices of palm oil due to continued weak global import demand. The drop in soy oil prices reflected improved production prospects in South America’s bumper soybean harvest, combined with improving global inventories.

Persistent weakness in crude oil prices also continued to weigh on the vegetable oil prices as a whole. Lower crude oil price favors Agric production.

Oil prices have had a knock-on effect on the price of food, which fell for a third straight year in 2014. Fertilizers, pesticides and other key farm inputs are derived from petroleum products, which will become cheaper as oil declines and is also good news for food security.

While consumers in the rest of the rest of the world may experience the benefits of falling commodity prices, food prices have been on the increase in the Nigeria following the devaluation of the naira.

Falling oil prices have weighed on the local currency, with the naira down 17 percent against the dollar in the past six months.

“A lot of investors, especially foreign investors, are watching because they believe the naira is going to have to devalue further,” Kayode Akindele, a partner at TIA Capital Management LLP, which oversees about $200 million, said by phone to Bloomberg. “They believe the oil price is going closer to 45 and it might put renewed pressure on the naira.”

Ahead of the release of Nigeria’s inflation rate figure for the month of March 2015 by the National Bureau of Statistics (NBS), Analyst has forecast that the increase in the composite consumer price index (CPI) in March will produce an inflation rate of 8.6 percent up from 8.4 percent in February month on month.

According to reports by the the research unit of FSDH Merchant Bank Limited, “Our model indicates that the price movements in the consumer goods in March 2015 would increase the Consumer Price Index (CPI) to 168.47 points, representing a month-on-month increase of 0.96 percent”.

“We estimate that the increase in the CPI in March will produce an inflation rate (year-on-year) of 8.6 percent, higher than the figure recorded in the month of February”, the report further revealed.

The FAO Cereal Price Index declined by 1.1 percent from the previous month, due to the significant fall in the prices of wheat and maize, a reaction to strong export competition in many major producing countries and to the anticipation of a generally favorable outlook for 2015 production.

Josephine Okojie