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Agriculture - Nutrition | Economy - Development

Food prices may head downwards

African Future, 17 October - For African consumers, the global recession may finally spell good news. As both fertiliser and oil prices are falling dramatically, food prices soon could follow. Food security in Africa could soon improve.

Yara International, the world's leading fertiliser producer, has announced drastic cuts in the prices of its products. Strongly growing fertiliser prices early this year were a major contributor to the soaring global food prices, which again caused greater food insecurity in Africa. During this year, "prices more than doubled for Yara's main fertilizer products," the company itself states.

According to a Yara statement released today, the price of its nitrogen-based fertiliser urea has fallen by 36 percent only this week, now costing US$ 340 a tonne. Since its peak, prices have more than halved. Only in early September, the market price for urea was over US$ 800 a tonne.

And neither Yara nor the market expects that fertiliser prices have hit their bottom. "We are currently seeing a slow-down in some of our fertilizer deliveries following the credit crunch," the Yara statement reads. But also the giant company's costs are falling, opening up for a further drop in fertiliser prices: "Yara's energy costs will benefit from lower global energy prices," the company foresees.

Falling oil prices thus directly are causing fertiliser prices to fall. But they also have another direct influence on food prices, as they reduce transport costs. Oil prices have dropped by more than 50 percent since their peak a few months ago, dropping from about US$ 160 a barrel to around US$ 70 currently.

The only negative international trend influencing price levels for African consumers is the steadily strengthening US dollar. As both fertiliser and oil are traded in dollars, price drops are not reflected as much in local currencies - trading lower compared to the dollar - as on the US market. For those having their revenues in US$, however - such as most international emergency aid providers - the price drop is fully realised.

As food production costs are lowered, the only hinder for lowered global food prices is now the volume of food production, where increased acreage used for biofuel production is still threatening global food security. While lowered transport costs can have an immediate effect on food prices, lower fertiliser costs will take their time - the time of a harvest - to show an effect.

For African consumers, the safest bet is that lower oil prices will lower some costs of life, including transport, immediately. Food prices may take some longer time to sink significantly, and there are many possible scenarios that may prevent such a development, including poor harvests.

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