Oct 10, 2008

World - Food may be cheaper if crude falls

Global food commodity prices could come down by upto 32 per cent if crude oil falls to $65 a barrel in 2010 — half the average of $130 a barrel this year, a United Nations body said.

“Drop in oil prices would lead to a significant decline in the agricultural commodity prices, ranging from 21-32 per cent in 2010, depending on the commodity,” the Food and Agriculture Organisation (FAO) said in the report ‘The State of Food and Agriculture 2008’.

Rice prices would come down by 32 per cent, maize by 26 per cent, vegetable oil by 24 per cent, wheat by 23 per cent and sugar by 21 per cent, the report said.


Change in prices ( in %)
Commodity Drop $65 Rise $195
Maize 26 30
Rice 32 27
Veg Oil 24 26
Wheat 23 23
Sugar 21 16

An estimated rise or fall in petroleum prices is done considering the average baseline price at $130 a barrel for 2008, it added.

The report also analysed the impact on farm commodity prices if petroleum rates rise to $195 a barrel in 2010.

“If petroleum prices double, commodity prices would rise in the range of 16-30 per cent,” FAO said.

Rice prices would go up by 30 per cent, maize by 27 per cent, vegetable oil by 26 per cent, wheat by 23 per cent and sugar by 16 per cent, it said.

Noting on the recent spike in commodity prices, the report said “among the factors responsible for the recent surge in commodity prices are higher costs of production driven by rising petroleum prices, weather-related production shortfalls in key exporting countries and strong demand growth - including for biofuel feedstocks”.

It further said that petroleum prices are a factor affecting demand for biofuel feedstocks.

“The projected growth in biofuel demand over the next decade is likely to push commodity prices 12-15 per cent above the levels that would have prevailed in 2017, if biofuels were held at 2007 levels,” he added.

FAO said it used simulation exercise to assess the effects of falling or rising crude prices on global agricultural prices, while it considered both the effects on the cost of production and on biofuel feedstock demand.

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