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Food prices dip despite China boosts to beef, milk

The United Nations, revealing a second successive annual decline in world food prices, highlighted the role in the market of China, which had fuelled a fall in sugar values besides rises in dairy and meat prices to record highs.

World food prices, on a year-average basis, dropped by 1.6% in 2013, taking them 8.8% below their 2011 peak, the UN food agency, the Food and Agriculture Organization, said.

The fall reflected largely a drop in grain prices, which ended the year at their lowest since August 2010, depressed by record production of corn and wheat, with strong output of oilseeds and sugar weighing on values too.

"Large supplies pushed down international prices of cereals, with the exception of rice, oils and sugar," the FAO said.

Dairy, meat price growth

However, the decline in food prices would have been more marked were it not for a late-year uptick in dairy and meat prices.

"Last month, [food prices] remained elevated as strong demand for certain high-protein foods continued to drive up prices overall, countering falling prices of major food crops after last year's abundant harvests," FAO economist Abdolreza Abbassian said.

Over the year as a whole, both set record highs by a margin in the case of dairy prices, which were 25% up on the 2012 average, lifted by a drought-hit start to 2013 for output from New Zealand, the top milk exporter, and strong demand from many developing countries.

Dairy dynamics

Indeed, the FAO highlighted the role in boosting dairy prices of China, whose demand for milk powder is being boosted by a clamour for infant formula, as mothers take a growing place in the work force, while efforts at boosting domestic production lag.

"Demand for milk powder, especially from China, remains strong," the FAO said.

The agency noted that this demand had meant that "processors in the southern hemisphere are focusing on this product rather than on butter and cheese".

Ironically, this has meant that "in context of light trading and most supplies being already committed, prices of the latter products [butter and cheese] have risen more than those of milk powder" reversing the pricing trend which Fonterra blamed last month for a warning that its earnings will halve in 2013-14.

At Tuesday's GlobalDairyTrade auction, run by New Zealand-based Fonterra, cheese prices rose by 1.9% and butter by 5.1%, on contrast to declines in milk powder values.

Beef price boost

The FAO also singled out the roles of China and Japan in raising meat prices, which were 1.1% higher in 2013, and have near-double in a decade.

"Demand from China and Japan has resulted in beef prices showing consistent growth since the middle of the year," the agency said.

While pork is China's staple meat, a growing taste for beef, of which the country is a small producer itself, drove domestic prices 24% higher in the year to November.

Imports have in the first 10 months of 2013 were, at 236,645 tonnes, up sevenfold year on year, growth termed "astonishing" by Rabobank, which forecasts the value of the Chinese beef market growing 10% a year over the next three years.

China had, thanks to "good harvests", also played a leading role in depressing sugar prices, which fell 17.9% over 2013 to their cheapest, on a year average basis, since 2008, the FAO said.

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