FAO Food Price Index (FFPI)

On 3 June 2021, Food and Agriculture Organisation (FAO) has released its monthly Food Price Index (FPI) for May 2021. The FAO Food Price Index (FFPI) averaged 127.1 points in May 2021. This score is 4.8% (5.8 points) higher than that of April 2021 and 39.7% (36.1 points) higher than that of May 2020.

Candidates should note that the figures are not important from the IAS Exam perspective, but the general idea about the factors behind the soaring and plummeting food prices is beneficial.

This article is important for the various competitive examinations including the Civil Services Examination preparation (UPSC Mains GS 3) as the article highlights the FAO’s Food Price Index and its importance in estimating the world food situation and inflation at the global level.

Overview of Latest FFPI

Source – FAO

The FFPI increase in May 2021 is regarded as the highest month-on-month soar in the prices since October 2010.

The sharp rise can be attributed to a sudden increase in prices for vegetable oils, sugar, and cereals together with steady meat and dairy products prices.

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What does FFPI take into account?

The FAO Food Price Index (FFPI) records the monthly fluctuations in the international food prices for a basket of five commodities:

1. Cereals
2. Vegetable oil
3. Dairy products
4. Meat
5. Sugar

These five broad categories of commodities are chosen to calculate FFPI because it has high and strategic importance in the world’s food security and trade. It is calculated by taking an average of these five commodity group price indices weighted by the average export shares of each of the groups over the period 2014-16.

Facts about FAO FPI for UPSC

Highlights of the FFPI

The below data is for the month of May 2021. As FAO releases FPI every month, the data would be either updated or appended here:

• The FAO Cereal Price Index rose 6% from the previous month. Out of major cereals, the international prices of maize surged the most due to the expected lower production for Brazil, which in turn put on additional pressure on supply-demand chains. However, in a forecast of high production in the United States, the prices of maize started to row back. Also, the month experienced increased international barley and sorghum prices. Subsequently, earlier this month the wheat prices also increased, however, improved crop conditions, especially in the European Union and the United States, contributed to a sharp decrease in the prices later in the month. On a brighter note, international rice prices were enduring in May.
• The FAO Vegetable Oil Price Index rose 7.8% from the previous month. The increase in this index is mainly due to the increase in palm, soy, and rapeseed oil prices. The rise in international palm oil prices is due to sluggish production growth in Southeast Asian countries and the increasing demand for global imports. Moreover, the rise in soy oil prices is because of demand, particularly from the biodiesel sector.
• The FAO Dairy Price Index rose 1.5% in comparison to the previous month. The hike in prices is due to the increased demand from the European Union for skim milk powder, and high import purchases of whole milk powder by China, against New Zealand’s large supplies. While the cheese prices strengthened, the butter plunged due to increased supplies from New Zealand.
• The FAO Meat Price Index went up 2.2% from the previous month. The rise is attributed to the increased import purchases of all meat products by East Asian countries, in particular China.
• The FAO Sugar Price Index increased 6.8% from April. The delays in harvest and reduced crop yields in Brazil (the world’s largest sugar exporter) due to unfavourable weather conditions contributed to the rise in international prices of sugar. The other factors for the price rise are higher crude oil prices and appreciation of the Brazilian Real against the USD (US Dollars), which hinders shipments from Brazil. To prevent a further surge in prices, India contributed large export volumes of sugar, which eased the situation.

Significance of FFPI

The food markets around the world are evolving constantly from time to time. Over recent years from 1996 to 2020, the overall population of the world grew by 34%, whereas net agricultural production has risen by almost 70% as measured in constant value terms.

During this time frame, the value of FFPI sink to near 60-year lows in 2000, and on the other hand, the value leaped to 45-year highs in 2011. Also, the nominal prices have shown a high deviation every month. In the backdrop of such changes and uncertainty, the FFPI acts as a critical and appropriate monthly yardstick to observe the condition of international food markets, measuring the fluctuations in food prices over time in both nominal and real terms.

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