Global food prices extended their upward trajectory in March, with the Food and Agriculture Organization of the United Nations (FAO) flagging rising energy costs linked to the Near East conflict as a key driver behind the increase.

The FAO Food Price Index averaged 128.5 points during the month, marking a 2.4% rise from February and a marginal 1% increase compared to a year earlier. While the uptick remains moderate, the agency cautioned that prolonged geopolitical tensions could begin to reshape global agricultural output and pricing dynamics in the months ahead.

Among key commodities, vegetable oils and sugar recorded the sharpest increases. The vegetable oil index jumped 5.1% month-on-month and is now 13.2% higher than a year ago, driven by stronger biofuel demand expectations as crude oil prices surged. Sugar prices climbed 7.2%, with Brazil expected to divert more sugarcane towards ethanol production amid elevated energy markets.

Cereal prices rose 1.5%, led by a 4.3% increase in global wheat prices due to drought concerns in the United States and reduced planting prospects in Australia amid rising fertilizer costs. However, rice prices declined 3%, reflecting weak import demand and currency pressures.

Energy ripple effects cloud outlook

FAO Chief Economist Máximo Torero noted that the impact of the conflict has so far been contained due to ample global cereal supplies. However, sustained high input costs could force farmers to cut fertilizer usage, reduce planting areas, or shift to less input-intensive crops—decisions that may weigh on yields and tighten supplies going forward.

The situation is further complicated by supply chain disruptions and rising transportation costs, particularly following tensions around key trade routes such as the Strait of Hormuz.

Supply remains comfortable, for now

Despite near-term price pressures, global supply fundamentals remain relatively strong. FAO projects global cereal production in 2025 at 3,036 million tonnes, up 5.8% year-on-year, with rice output expected to hit a record 563.3 million tonnes.

For 2026, global wheat production is forecast at 820 million tonnes, a modest 1.7% decline from last year, as lower output in major producers like the European Union, Russia, and the United States is partly offset by record production in India and improved yields across parts of West Asia and North Africa.

Global cereal stocks are projected to rise 9.2% to 951.5 million tonnes, pushing the stocks-to-use ratio to a comfortable 32.2%, indicating adequate buffer levels.

Fertilizer costs add uncertainty

Even so, FAO warned that rising fertilizer and energy costs remain a critical risk. Any prolonged escalation in conflict could disrupt planting decisions and input usage, with potential spillovers into global food inflation and trade flows.