Bank of Korea: "FAO Food Price Index Hits Highest in 10 Years"

Bank of Korea Publishes 'Overseas Economic Focus' on 14th
Concerns Over International Oil Price Trends and Abnormal Climate Possibility in South America

[Asia Economy Reporter Jang Sehee] The Bank of Korea announced that last month, the United Nations Food and Agriculture Organization (FAO) Food Price Index rose 22.6% compared to the end of the previous year, reaching its highest level since July 2011.

On the 14th, the International Economy Department of the Bank of Korea's Research Bureau explained in the weekly publication "Overseas Economic Focus" that this was due to a sharp increase in prices of oils and fats (40.9%) and sugar (36.7%). The FAO Food Price Index tracks monthly changes in various types of food products.

Looking at the weight of the Food Price Index by item group, meat accounts for the largest share at 33%, followed by grains (29%) and oils and fats such as palm oil (17%).

The Bank of Korea analyzed that the price of oils and fats rose significantly due to poor palm oil production in Southeast Asia caused by labor shortages following the spread of COVID-19. The World Bank (WB) forecasted at the end of last month that Malaysia's palm oil production would decrease by 7.6% compared to the previous year.

Sugar prices were seen to have risen due to drought in Brazil causing poor sugarcane harvests and increased bioethanol substitution demand resulting from rising crude oil prices.

The Bank of Korea stated, "Major institutions expect food prices to stabilize somewhat next year." The WB projected that oils and fats prices will remain at this year's level with a 0.3% increase next year, while grain and sugar prices are expected to fall by 9.8% and 5.1%, respectively, due to improved harvests.

Furthermore, the Bank of Korea analyzed, "Price instability factors such as international oil price trends and the possibility of abnormal weather (La Ni?a) in South America still persist."