ROME (REUTERS) - World food prices fell sharply in March, hit by a drop in demand tied to the coronavirus pandemic and a plunge in global oil prices, the United Nations food agency said on Thursday (April 2).

The Food and Agriculture Organisation (FAO) food price index, which measures monthly changes for a basket of cereals, oil seeds, dairy products, meat and sugar, averaged 172.2 points last month, down 4.3 per cent on February.

"The price drops are largely driven by demand factors, not supply, and the demand factors are influenced by ever-more deteriorating economic prospects," said FAO senior economist Abdolreza Abbassian.

The FAO also slightly increased its forecast for cereal production, predicting a crop totalling some 2.721 billion tonnes in 2019, up from a previous forecast of 2.719 billion and some 2.4 per cent higher than the 2018 crop.

The FAO's sugar price index posted the biggest fall, down 19.1 per cent from the previous month.

The drop was triggered by a reduction in consumption linked to the virus lockdowns seen in many countries, and lower demand from ethanol producers due to the recent dive in crude oil prices, the Rome-based agency said.

The vegetable oil price index slumped 12 per cent, pushed down by sliding palm oil prices, which was linked to a plunge in crude mineral oil prices and growing uncertainty over the impact of coronavirus on the market.

"Oil prices have fallen by more than half during the past month, which catalyses a large downward impact on biofuels, which are an important source of demand in the markets for sugar and vegetable oils," said FAO analyst Peter Thoenes.

The dairy price index dropped 3 per cent, driven by declining quotations and slowing global import demand for skim and whole milk powders, while the meat index fell by 0.6 per cent.

The cereal price index fell 1.9 per cent, with rice prices bucking the downward trend, rising for the third month running, buoyed by stockpiling spurred by concerns over the pandemic and reports that Vietnam might introduce export bans.

The FAO said Vietnam had since downplayed the reports.

While the FAO lifted its forecast for 2019 world cereal production, its estimate for 2020 wheat production remained unchanged at 763 million tonnes, close to last year's record level.

"(This) coupled with ample inventories, will help shield food markets from turmoil during the coronavirus storm," the FAO predicted.