What Is a Food Price Index?

The food price index is a measurement that shows the average price of food and why food prices go up or down. Five figures are averaged together to create the overall price index; they are: cereal, sugar, oils and fats, meat and dairy. Along with showing the price of food, this index details exactly what factors are causing the food price to climb or fall. Normal factors include exporting and importing prices, the amount of food produced and natural disasters that affect production levels. While consumers can look at the food price index to figure out why food prices are changing, this scale is meant more to show politicians and food manufacturers what is affecting prices so the factors can be corrected if needed.

There are six figures shown on the food price index, but only five of them are real measurements; the sixth averages the other five together. The cereal index does not measure packaged cereal prices but the rice and wheat that goes into creating cereal. Dairy measurements are concerned with eggs, milk and milk-based products while the meat index records the overall spectrum of meat, including beef, pork and poultry. While called the oils and fats index, this measurement only looks at the price of oils such as soybean oil, olive oil and canola oil. In the sugar index, the price of sugar — regardless of what form it is in — is measured and displayed.

Along with displaying the differences in food prices for a given month, the index also details why prices are changing. Sometimes, the reasons may be as simple as wheat selling poorly one month or a country lowering exporting prices and driving shipping costs down for that month. A natural disaster is another common reason, because one can eat up fields of crops or kill many animals, lowering the overall production. If food products are being used for something else, such as biofuel, this also can affect prices.

While the food price index chart is accessible to anyone, it is not entirely meant for consumers, because the chart only tells consumers if prices are dropping or rising and why. This chart is meant more for politicians and food manufacturers, because they have the power to change food prices by altering the factors that affect food price. The food price index also can show politicians what countries may have riots over obtaining food, which can help them pre-emptively stop any altercations.