The outlook for food prices gives us little reason for cheer
Published 11/05/2016 | 02:30
Irish farmers are price takers, not price makers. As the market for foodstuffs is so globalised, and because Ireland produces such a tiny fraction of the world's food output, farmers here have next to no influence over the prices they get for their output. That is true even for the two commodities - milk and beef - which are by a distance the most important for this island's farmers.
While producers have always faced volatility in prices, movements in food prices and, for that matter, most other commodities, have been roller-coasting over the past decade and more. As anyone in the sector knows only too well, milk prices are on the floor at the moment and beef prices are threatening to fall.
This topsy turvy world of food prices over the past decade is illustrated in the accompanying graph. The data, collected by the Food and Agriculture Organization for the United Nations (FAO), shows the prices of baskets of cereal, dairy and meat products. So that they can be compared easily, all prices are indexed to the years 2002-04.
Buoyed by economic growth in emerging markets, food prices rose from the mid-2000s, with dairy and cereal prices jumping 80pc on the 2002-04 period. After a sharp fall during the financial crisis in 2008-09, they the surged again. Meat prices peaked in 2014, at 45pc above the level of early in the last decade.
But last year world food prices started tumbling, a development closely related to the slowdown in emerging markets, notably China.
Another reason is that like other commodities, food prices have a tendency to shadow movements in the price of oil, which has also crashed. Fuel is an important input in agriculture. Although it does not directly apply to Ireland, high energy prices incentivise more biofuel farming, in turn reducing supply for consumption. Putting all the pieces together, the modest increase in oil prices since the New Year may actually be welcome to food producers, however counter-intuitive that may appear.
But that may not be enough to offset other price-depressing effects. In its commodities market outlook released last week, the World Bank in Washington DC is forecasting that agriculture prices will decline again this year.
The slump in global food prices has hit the dairy industry the hardest. Prices have been falling since 2012 and are now close to levels of more than a decade ago.