LONDON—World food prices fell in March for the first time in eight months, the United Nations' food body said Thursday, but it warned that prices may resume rising as higher output may not be enough to replenish low stock levels.
The Food and Agriculture Organization's food-price index, which tracks a basket of food commodity prices, fell to 230 points last month, down 2.9% from its record peak in February but still 37% above the same time last year.
International prices of oils and sugar dropped the most, with the oil and fat index falling 7% on month and the sugar index down 10% from the highs of January and February.
The FAO's index of cereal prices also fell by a more muted 2.6% in March, in line with a slump in international grain futures markets after Japan's earthquake and continuing concerns over turmoil in the Middle East.
But David Hallam, director of the FAO's Trade and Market Division, said the respite doesn't mean a reversal of the trend that has seen world food prices hit successive highs this year. Wheat prices, for example, have risen more than 25% from their March lows and corn futures hit a record high this week.
"All of the factors which were leading to the prices going up over the last few months are all still there," Mr. Hallam said. "We had something similar in 2007-08, when the stocks were run down to such a level that when there are shocks in the market there's no safety valve there."
Food-price inflation has become a global political concern after contributing to protests that rocked the Arab world and toppled the rulers of Tunisia and Egypt earlier this year. The World Bank estimates the price rises may have pushed 44 million people into poverty, and aid agencies warn high food costs threaten millions more.
"With many poor communities already feeling the effects of higher food prices and grain stocks in the main food-exporting countries at dangerously low levels, sighs of relief in response to today's announcement by the FAO would be premature," said Oxfam's policy adviser Luca Chinotti.
Yet while every major forecasting agency is expecting a rise in world food production next year, particularly in grains, doubt remains as to whether this will be enough to sate demand given low stock levels.
The FAO said it expects world wheat production to rise 3.4% to 676 million tons in 2011-12, a more optimistic prediction than the International Grain Council's forecast of 673 million tons, but the FAO warned even this may not be sufficient to replenish inventories.
"I think the market's pretty tight and because of this prices will stay high and volatile," said Prabhu Pingali, the deputy director of the agriculture development initiative at the Bill & Melinda Gates Foundation. "Growth rates have been stagnant for so long that supply hasn't been keeping up with demand and we don't have enough buffer to manage the shocks coming into the system."
Even with hopes high for next year's output, as farmers expand production in a bid to cash in on higher prices, further weather problems could still cause more production issues this season as they did last year, Mr. Hallam said.
"If you look back to this time last year, everyone was looking forward to record harvests and even in the autumn some of the major producers and exporters were still expecting major harvests," he said. "It's still a bit premature until we get more hard information about plantings to say what's going to happen."
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