Global cereal prices to remain high in coming years: UN report

Global cereal prices to remain high in coming years: UN report

New York: The United Nations has warned that global cereal prices are expected to remain high for the coming year largely due to problems in production in several major exporting countries and very low world stocks.

High international food prices are fuelling domestic food inflation in many parts of the world as supplies for most cereals are much tighter, a new United Nations report warns.

Further complicating the situation is the rising demand for food as feed as well as for industrial use, the report published in “Food Outlook", just published by the UN Food and Agriculture Organization (FAO), said.

Stocks, which were already low at the start of the season, were likely to remain equally low because global cereal production may only be sufficient to meet expected world utilization, the report said, adding agricultural prices had risen sharply last year but this year, they are increasing even at a faster pace.

FAO expects many countries would have to pay more for importing cereals from world markets than they did in previous years, even though they are expected to import less. Record freight rates and high export prices were the main reasons for the increase in their import bills.

“High international prices for food crops such as grains continue to ripple through the food supply chain, contributing to a rise in retail prices of such basic foods as bread or pasta, meat and milk," the report said.

According to the FAO analysis, the world has rarely felt “such a widespread and commonly shared concern about food price inflation, a fear which is fueling debates about the future direction of agricultural commodity prices in importing as well as exporting countries, be they rich or poor."

Soaring petroleum prices, FAO said, have driven up prices for agricultural crops by raising input costs and by boosting demand for those crops used to produce biofuels.

The combination of high petroleum prices and the desire to address environmental issues is likely to boost demand for feed stocks, especially sugar, maize, rapeseed, soybean, palm oil and other oil crops as well as wheat for years to come, it warns.

Increased fuel costs, stretched shipping capacity, port congestion and longer trade routes have pushed up shipping costs, making freight rates a more important factor in agricultural markets than in the past, report pointed out.

Stressing that record freight prices not only increase the cost of transportation, they have also changed the geographical pattern of trade, as many countries are sourcing their imports from suppliers closer to home to save on transport costs.

The fact that the dollar depreciated sharply against all major currencies, the Outlook says, lessened the real impact of the rise in world prices in non-dollar economies.

However, countries whose currencies did not strengthen will bear the full brunt of the rise in US dollar-denominated commodity prices.

According to Food Outlook, all indications point to more wheat being planted around the world for harvesting next year. A strong expansion in wheat production, assuming normal growth in consumption, is bound to bring down wheat prices.

Maize prices hit a 10-year high in February last but have fallen considerably since. Supply constraints in the face of brisk demand for biofuels triggered the initial price hike in maize prices.

Among all agricultural commodities, dairy products have witnessed the largest gains compared with last year, ranging from 80% to more than 200%, it adds.