World food prices are likely to extend recent falls in the coming months as recession fears sap demand and supplies remain strong, but they can rebound on adverse crop weather and rising demand, the United Nations' FAO food agency said on Thursday.
High food prices helped fuel inflation and stoke the unrest of the Arab Spring early last year, grabbing the attention of world leaders. Prices, however, have dropped steadily in the second half of 2011, helping to ease inflationary pressures.
The FAO earlier reported its index of global food prices fell in December from the previous month, extending falls seen in the past several months.
"There is certainly a declining tendency (in food prices) amplified by the fact that on the demand side the situation is not that favourable and the supplies are pretty adequate ...for almost all commodities," FAO's senior economist Abdolreza Abbassian told Reuters.
Last month, the Rome-based FAO raised its estimate of world grain stocks, a closely watched indicator of global supplies, to 511 million tonnes at the end of 2012 seasons, up by 5 million tonnes from its previous forecast..
"The only upside risks on prices we should see in the coming weeks and months will arise should weather developments start to really have an implication for production for 2012," Abbassian said in a telephone interview.
"Demand, if it picks up faster later in the year, is also a possibility that we cannot ignore," he added.
Drought in Argentina has been driving U.S. corn and soybean prices higher in the past few weeks.
Abbassian said it was still too early to say if adverse weather would have a negative impact on crops in South America and some other major producers.
December price drop Global food prices fell month-on-month in December driven down by sharp falls in cereals, sugar and vegetable oils due to bumper crops, slowing demand and a stronger U.S. dollar, the FAO said, easing inflationary pressures ahead of the European Central Bank's decision on interest rates later on Thursday.
The ECB is widely expected to leave interest rates unchanged at 1 per cent and cut to 0.75 per cent in February or March to help support the euro zone economy.
The FAO Food Price Index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar , averaged 211 points in December, down 5 points from November and 27 points or 11.3 per cent below its peak in February 2011.
Despite a steady fall in food prices in the second half of 2011, the FAO index averaged 228 points in 2011, the highest average since the agency started measuring international food prices in 1990, it said.
The previous high was in 2008 at 200 points, the FAO said.
World food prices remained at historically high levels and would not collapse this year, while volatility seen last year would remain the norm, Abbassian said.
Food prices have shown resilience despite weakened demand, recession fears and strong crop recovery in 2011, he said.
"It is quite extraordinary that prices came down as little as they have," Abbassian said, adding, however: "One should not be expecting prices to be collapsing to any low levels any time soon.