Food prices at its lowest in 6 years: Here are the reasons why

By MoneyTimes

Aug 11, 2015 02:22 AM EDT

The UN FAO reported low food price index - the lowest in six years.

If the situation persists, the price drop will be welcomed by consumers globally, which is also beneficial for poor countries. But the plentiful supplies of these products may also have a negative impact for farmers with prices not enough to cover for production costs.

UN FAO's food price index is said to be at its lowest since 2009 September, reduced to around 20 percent compared to last year.

The quick drop in dairy has impacted New Zealand, known to be the world's biggest exporter of dairy with its central bank cutting interest rates. Cost of dairy goes down 35 percent compared to last year resulting from reduced import demands from North Africa, Middle East and China. New Zealand manufacturers lowered their prices in order to clean up their stocks as the end of the financial year closes in July.

Also stocking up on their inventories compared to last year's were European milk manufacturers where milk powder prices have been the most affected. Butter and cheese also reduced significantly in prices.

As a consequence to the reduction in soybean and palm oil prices, vegetable oil is found to be at its lowest since 2009 July. Palm oil production slowed down particularly in Asia and along with slow exports, oil prices fell. On the other hand, prices of soya oil fell because of high supplies in South America and of upcoming good harvests from other producers.

In contrast, cereal prices have increased by 2 percent since June mainly because of poor grain production due to incompatible weather in Europe and North America. Prices of grains have been dropping continuously for a couple of years because of bountiful productions but quickly rose in July due to heavy rains and flooding. 

Dry weather in other regions has also contributed to the increase in prices of grains. With the improvement in weather conditions in these places, agricultural experts assure of lower prices of cereals in the future.

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