World Food Prices Hit 7-Year Low, But You Won't Save a Dime
The savings won't trickle down to your wallet.
International food prices in 2016 dropped 16 percent in the past 12 months—a 7-year low—according to the UN's Food and Agriculture Organization (FAO). You'd think this means we can feed more people in the world, right?
Not exactly. Chances are, none of the savings will trickle down to your pocket and, what's worse, farmers in some countries will now make even less money off their crops than they did last year.
As CNBC first noted, global prices for five commodity groups (major cereals, vegetable oils, dairy, meat and sugar) have dropped. The Sugar Price Index, for example, dipped 4.1 percent since December, largely due to better crop conditions in Brazil, the largest producer and exporter of sugar. The Dairy Price Index fell by 3 percent because of large supplies in the EU and New Zealand. Cereals and Vegetable Oils indices both dropped by 1.7 percent and the Meat Price Index fell 1.1 percent.
Generally speaking, there is an abundance of food, shrinking demand due to a slowing world economy, and a rise in the value of a the U.S. dollar. Cheaper oil also helps keep costs down due to savings in energy required to power agricultural systems.
Hypothetically, we should all see a dip in pricing for unprocessed foods—especially fruits and vegetables. But other costs hide the savings from consumers. As Evan Fraser, a professor specializing in food security at the University of Guelph in Canada, told Quartz, "For the average North American, the price of the corn in [a box of processed] corn flakes is relatively small. Most of what you pay for is advertising, marketing, packaging—there are a lot of filters."
Bottom line: Farmers in the developing world will earn less for their product until there's another upswing. And there's no saying what the future will bring. Some analysts are worried about the effects of El Niño on global crops this year. In particular, there could be both droughts and floods south of the Equator, wreaking havoc on rice crops. And yet, somehow, I bet if commodity prices rose, consumers would end up paying part of the bill.