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Vegetable oils, dairy products drive up global food prices to 7-year high

Global food commodity prices rose in March, marking their tenth consecutive monthly increase at a time when Covid-19 pandemic continues to batter the economy from various fronts.

The Food and Agriculture Organisation of the United Nations reported that quotations for vegetable oils and dairy products took the lead in price surge.

According to FAO Food Price Index, which tracks monthly changes in the international prices of commonly-traded food commodities, averaged 118.5 points in March, 2.1 per cent higher than in February and reaching its highest level since June 2014.

Trends varied by commodity types. The March increase was led by the FAO Vegetable Oil Price Index, which rose 8 per cent from the previous month to hit a nearly 10-year high, with soy oil prices rising sharply due in part to the prospects of firm demand from the biodiesel sector.

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The FAO Dairy Price Index increased 3.9 per cent from February, with butter prices buoyed by somewhat tight supplies in Europe associated with increased demand in anticipation of a food-service sector recovery.

Milk powder prices also rose, supported by a surge in imports in Asia, particularly China, due to declining production in Oceania and scarce shipping container availability in Europe and North America.

The FAO Meat Price Index also rose, by 2.3 per cent from February, with imports by China and a surge in internal sales in Europe ahead of the Easter holiday celebration underpinning increasing poultry and pig meat quotations.

By contrast, the FAO Cereal Price Index dropped by 1.8 per cent, but it is still 26.5 per cent higher than in March 2020. Wheat export prices declined the most, reflecting generally good supplies and favourable production prospects for 2021 crops. Maize and rice prices also declined, while those for sorghum rose.

The FAO Sugar Price Index declined 4 per cent in the month, triggered by prospects of large exports from India, but it remained more than 30 per cent above its year-earlier level.

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FAO expects world cereal production in 2021 to increase for the third consecutive year and has raised its preliminary global wheat production forecast on better than-earlier-anticipated crop conditions in several countries. Global wheat production is forecast to reach a new high of 785 million tonnes in 2021, up 1.4 per cent from 2020, driven by a likely sharp rebound across most of Europe and expectations of a record harvest in India.

For the current 2020/21 marketing season, global cereal utilization is now forecast at 2,777 million tonnes, 2.4 per cent higher than the previous year, driven largely by higher estimates of feed use of wheat and barley in China, where the livestock sector is recovering from African swine fever.