The Food and Agriculture Organisation's Food Price Index dropped to an average 230 points in March, down 2.9 percent from its peak in February, but still 37 percent above March 2010, the Rome-based agency said.

"The decrease in the overall index this month brings some welcome respite," said David Hallam, director of the FAO's trade and market division.

"But it would be premature to conclude that this is a reversal of the upward trend," he added.

The FAO index, which monitors average monthly prices for key staples, showed international prices for oils, sugar and cereals in particular had dropped.

Rice prices also fell, largely as a result of abundant supply in exporting countries and sluggish import demand. By contrast, dairy and meat prices rose.

"The biggest story is the oil sector, that's the driver behind the decline in prices," said Abdolreza Abbassian, FAO economist and grains analyst.

"The drop was driven by sell-offs in the market, but didn't last," he said.

"We saw a decline only in the first two weeks of March. In the second half of the month prices rebounded. Most of the price increase is not captured in this index but is likely to be reflected in the next one," he said.

March was also extremely volatile for grains, largely due to growing economic uncertainties and the turmoil in North Africa and parts of the Near East as well as the Japanese earthquake and tsunami, the FAO said.

"We need to see the information on new plantings over the next few weeks to get an idea of future production levels," Hallam said.

"But low stock levels, the implications for oil prices of events in the Middle East and North Africa and... Japan all make for continuing uncertainty and price volatility over the coming months," he said.

The oil and fats price index fell 19 points in March, breaking nine months of consecutive increases, while the sugar price index averaged 372 points -- down as much as 10 percent from the highs of January and February.

The dairy price index averaged 234 points, up 1.9 percent from the previous month and 37 percent above its level in March 2010, while the meat price index changed little from its February levels at an average of 169 points.

"As we have said before, this crisis will be volatile. The prices are still at very high levels. It all depends on the 2011 harvest. The market is not going to ignore uncertainty for at least the next six months," Abbassian said.

World food prices hit record highs at the beginning of the year and the agency had warned in March that oil price spikes could push them even higher as increasing violence in Libya sent jitters through commodity markets.

"With many poor communities already feeling the effects of higher food prices and grain stocks in the main food exporting countries at dangerously low levels, sighs of relief in response to today's announcement by the FAO would be premature," Oxfam's policy advisor Luca Chinotti said in a statement.

"Food remains far too expensive for many poor people," he said.

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