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UN praises governments as food prices fall

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Food prices fell for a third successive month in December, and dropped in 2012 overall despite "fears of a new food crisis", the United Nations said, crediting governments' role in the declines.

Food prices fell 1.1% in December to their lowest since June – the month when grain and oilseed values began a rally, spurred by US drought, which sent prices of corn and soybeans to record highs.

And prices in 2012 overall were 7.0% below those of the year before, data from the UN Food and Agriculture Organization showed.

The results represented "a reversal from the situation last July, when sharply rising prices prompted fears of a new food crisis", said Jomo Sundaram, FAO assistant director-general.

'Price spike short-lived'

However, price rises had been kept in check by a reluctance by governments, as in some previous periods of crop shortages, to stockpile food supplies, or impose export bans, as already highlighted by Agrimoney.com.

"International co-ordination, as well as flagging demand in a stagnant international economy, helped ensure the price spike was short-lived, and calmed markets so that 2012 prices ended up below the previous year's levels," Mr Sundaram said.

Government trade bans have a rich history of sending crop prices soaring, even when supplies are relatively plentiful, as with the rice market in 2007-08.

This year, Russia, a major supplier of competitively-priced wheat, signally resisted imposing restrictions on shipments of the grain, despite a harvest worse than in 2010, when it banned exports altogether.

Demand softness

Indeed, grain prices led last month's decline in food values, falling 2.3% according to the FAO.

"After surging over the July-to-September period, on production uncertainties and tightening supplies, cereal export quotations dropped because of weaker demand for feed and industrial uses," the agency said.

Prices of edible oils and fats dropped 1.9% to their lowest in more than two years, sapped in particular by tumbling palm oil values.

"The main reason for the fall in December is the continued build-up of large global inventories of palm oil - as abundant production in South East Asia coincided with a protracted weakness of import demand," the organisation said.

Livestock and dairy pressures

The FAO also highlighted margin pressures in the livestock industry, highlighted by a slight decline in values over 2011 despite cost pressures.

"Overall, the meat sector has had to focus on productivity gains, as increased feed costs have not been associated with higher product prices."

Dairy prices fell particularly "sharply" in 2012, by 14.5%,

However, a 0.9% rise in dairy values in December may set a trend, if a return to less benign weather stems growth in New Zealand milk output, as many analysts expect.

"Overall, the dairy market remains well-balanced," the organization said.

"However, it is increasingly susceptible to supply changes depending on pasture conditions - especially as southern hemisphere producers assume an increasing role in supplying the world market - and on feed availability and affordability."

By Agrimoney.com

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