During the past month, global food prices dropped again in almost all food categories, according to the authoritative report published on Thursday (July 4) by the United Nations Food and Agriculture Organization (FAO) in Rome, which keeps taps on food prices and quantities across the globe.
By contrast, local food prices have shot up during the past month, partly in anticipation of rising demand during the holy month of Ramadan. Every year, wholesalers and retailers in Saudi Arabia and other Muslim countries raise their prices around this time of the year, taking advantage of the anticipated spike in local demand.
Since Saudi Arabia imports most of its food from abroad, it is easy for local traders to blame their higher prices on international prices. But the FAO report belied those claims.
According to the FAO report, global food prices fell 1 percent in June 2013 compared to the month of May due to drops in prices for all major food groups. The FAO price composite index, which measures monthly price changes for a typical basket of foods, fell for a second month running to 211.3 points in June, compared to 213.2 points in May.
FAO explained that the drop in June and May prices was part of a downward trend that has started a while ago and is expected to continue in the foreseeable future. Among other things, FAO revised its June 2013 expectations for 2013-14 world wheat output by 2 million tons (to 704 million tons), pointing to improving prospects in nearly all major wheat-producing countries with the exception of the United States. In addition, they raised their previous expectations, also published in June, of corn production by 9 million (to 972 million tons).
The fall in the FAO’s composite index derives from a sharp 4 percent drop in dairy costs, and a 3 percent drop in sugar prices. Cereal prices sub-index fell about 1 percent while prices of food oil reached a six-month low.
The fall of global food prices in June continued a general downward trend for the past two years. In February 2011, the FAO index peaked at 238 points. Since then, it has fallen (27) points, or (11) percent.
Locally, the opposite has happened. According to the Central Department of Statistics and Information (CDSI), food prices rose by over (12) percent during the same period. In the past (12) months alone, food prices have increased by (6.4) percent.
Then there was a big spike in local food prices during the past few days, just before Ramadan. Almost all Saudi newspapers have published horror stories about “sky-rocketing” food prices. Their sources are mostly wholesalers and retailers who may have ulterior motives in creating impressions about impending high prices. Traders appear to be feeding the frenzy, to create panic among consumers, which would make it easier to raise prices and get away with it.
Even the staid official news agency published a story on Friday, citing unnamed “store officials” who claimed that prices for Ramadan staples had risen between ten and (15) percent over last year’s prices. A newspaper published a report on the same day citing a wholesaler of palm dates, a Ramadan staple, who said he raised the prices by (15) percent in one week!
According to an Arab News report published yesterday, tomato prices more than doubled during the week before Ramadan.
While some of those reports may be anecdotal and not representative of all markets and all products, the fact remains that some traders, wholesalers and retailers, are raising their prices to take advantage of Ramadan.
What is equally true, however, is that those rising prices have nothing to do with global trends, which indicate that food prices have been falling for some time, as the recent FAO report clearly documents.
How do food price hikes recur every year during the holy season?
Much of it is about psychology. Recollections of past food price hikes create anxiety among consumers about possible, sudden price spikes in the future. That anxiety is fed by speculations in the press, mostly by self-interested parties. Anxiety leads to panic buying, when consumers purchase more than they need. Hoarding in such fashion creates a temporary spike in demand, which in turn creates upward pressure on prices.
Lack of reliable information about prices and quantities and doubts about security of supplies feed frenzied buying in this fashion.
A fundamental issue at play here is oligopoly in the import business. Most imported goods, including foodstuffs, are distributed by only a small number of importers and distributors. That small number of traders are then able to control supplies to create artificial scarcity in some strategic products. They can regulate the flow of supplies to prevent prices from falling, or raise them if they feel that time is right.
Another contributing factor is the limited capacity of regulatory agencies and consumer groups to monitor prices during Ramadan. In light of this fact, I will revisit this issue in the coming weeks. I will suggest some ways for consumers to deal with this recurring phenomenon.
