Essay Example on Food Prices Rise in October: Good News for Farmers

Food prices continued to rise in October, boosted by higher sugar and dairy prices, with the critical index up almost a tenth from a year before. The food price index published by the UN Food and Agricultural Organisation (FAO) rose 9.1 percent last month from the same time the previous year and483870043878500444754043878500444754043878500 0.7 percent from September. Higher agricultural prices are good news for farmers, who have faced declines in the profitability of their crops. After four years of declines amid plentiful supplies and bumper harvests, food prices have been steadily rising this year, mainly due to adverse weather, with agriculture being the main driver of the rise in commodity prices.

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Abdolreza Abbassian, a senior economist at the FAO, said that the potential for further price increases was limited because of the excellent supply prospects. But he added: "Exchange rate fluctuations and uncertainties in financial markets in the aftermath of the US presidential election may well become a defining factor for many months to come." October's rise was driven primarily by jumps in sugar and dairy prices. Sugar rose 3.4 percent in October amid reports of production shortfalls in Brazil's essential sugar-growing region and India's Maharashtra state. Dairy rose 3.9 percent from September, led by cheese and butter markets, thanks to demand in the EU. Cereals were also higher, due to firm wheat prices, driven mainly by tightening supplies of high-quality wheat, while corn was also higher on the back of exports by the US. Meat prices, however, fell, dropping 1 percent in October, driven by weaker demand for European pork from importers in China.

Overall, food prices are rising despite record grain harvests in the northern hemisphere. Sugar, meat, dairy, and vegetable oils are among the sectors where markets have firmed over the past year. The FAO said grain production for the 2016-17 crop year was forecast at 2.57bn tonnes, up 1.5 percent from a year before thanks to rising wheat output from Russia, said the FAO. Russian production is expected to hit a record, while favorable weather is also boosting prospects in Kazakhstan. The increase in world wheat and barley production is forecast to more than offset the expected 4.8m tonne decline in the 2016 global corn crop due to bad weather in Brazil, China, and the EU. The

FAO said wheat plantings in Russia and Ukraine for the 2017 winter wheat crop were ahead of last year, while farmers in the US were likely to reduce planting for wheat, because of the lower prices and subdued export outlook due to increased competition in international markets. Corn sowing in Argentina was underway, and conducive weather conditions were leading to the expansion of 6 percent from last year's high levels, said the FAO. On the demand side, lower prices are expected to promote feed use of grains, with feed consumption expected to rise 2.7 percent in the 2016-17 season. The use of wheat for animal feed, buoyed by ample supplies of lower-quality wheat, is forecast to grow 6.1 percent to 146.6m tonnes, an all-time high.

Commentary

The average price levels of a food substance on a global scale rely mainly on demand and supply. The prices levels and fluctuations which are contributed by the food industry come from food distribution, food marketing, and food production process. The reason for food price fluctuations varies from excess supply, crop yield, food speculation activities, harvest failure, and food demand. This paper explored the global food prices and affected on sugar and dairy high products that mark the core food components in the market.

Since both the sugar and dairy products are agricultural products commodities, their prices are influenced by the interaction of many other factors, which is not limited to the underlying aggregate of demand and supply. By the third quarter of the year 2016, Financial Times produced an article that gives essential details for the growing trend of food prices. According to the report, it is reasoned that the global food price index increases by 0.7% monthly and 9.1% every year.

As farmers are the primary price takers, they live within the price that the market determines, depending on demand and supply. For example, when the costs of dairy products go up, the prices of cereal, eggs, pork, and chicken will also go up. Because of this, regardless of the variety of food products that are offered in the global market, their prices are tied up to some core natural food that combines meat, sugar, fruits/vegetables, and grains.

The meat price affects the value of other comedies such as that of poultry and that of seafood. It is because they do compete for the same market. Another factor that affects the meat price is quality. The quality of meat that dictates the meat price is; juiciness, flavor, and tenderness. The customers' demand the quality meat has led to a decrease in the costs. When the quality of beef being offered is low, then there will be a decline in the quantity of meat that is supplied. Hence affects the market price of that commodity. The decrease in the quality of meat has led to a decline in amount, which is estimated to be 1% for the last year, as per the 2016 Financial Times article. From this, it can derive that apart from the supply and demand that are likely to affect the price fluctuation, other factors such as quality also determine the demand and price.

The production of grains, especially wheat, has increased in countries such as Kazakhstan and Russia. It is because of favorable weather conditions that facilitate the wheat production. The increased production has led to lowering the price of the wheat cereal products. Due to the high output of wheat, the farmers have turned their attention from the corn grain production. It has led to a decline in the quantity of the corn grain that, hence leading to the high price of the commodity. Shown in the diagram below, when the supply decrease from S1 to S2, then the cost of the product increased from P1 to P2, this happens when the demand and quantity remains constant

The central supply regions for sugar are India and Brazil. There has been a decrease in sugar supply from these regions. It is due to urbanization, change in weather conditions, and decrease of land for cultivation due to increased population. The decline in production has led to reducing in the supply of sugar. The prices as therefore rise by 3.4%. in the global sugar price, according to Financial Times. Thus, when the amount of a commodity decreases, with demand remaining constant, then there is a likelihood of an increase in price.

Though the supply of dairy products has remained constant, the demands of the products are increased. This increase in demand with a steady supply has resulted in the price increase. It can be concluded that when the need for substances increases with the supply remaining constant, the price tends to increase. Hence the law and supply and demand affect the price too.

From the figure above, when the demand increase from D1 to D2, the price also increases from P1 to P2. While the supply remains constant.

The law of supply and demand states that low supply and high demand increase in price. On the other hand, when supply is higher, and the demand is more economical, then there is a high possibility of the amount of that particular commodity falling (Agrawal, 2013). Demand and supply pull against each other until the equilibrium market price is reached. However, another factor such as the quality can affect demand and supply hence causing them to decrease or increase in various manners. These factors affect the global food prices, which mainly rely on the cost of sugar and dairy products which are the core food product in the mar

References

Agrawal, P. (2013). Managing Food Price Inflation: Demand Projections and Supply Considerations. Sustaining High Growth in India, 2(7), 55-84. doi: 10.1017/9781316855584

Financial Times (2016), Global food prices on a sugar and dairy high, Available: https://www.ft.com/content/3205d8e4-a72b-11e6-8898-79a99e2a4de6