Higher food prices likely: UN report

Higher food prices likely: UN report

Rome: Prices of wheat and other staples have risen “alarmingly" over the past year, a UN report said Wednesday, acknowledging fears of a repeat of the 2008 food crisis when a spike in the price of bread led to deadly riots in some countries.

Further increases were likely unless production of major food crops increases significantly in 2011, the Rome-based Food and Agriculture Organisation said, warning that international food import bills could pass the $1 trillion mark in 2010.

“With the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011 and be prepared," the agency said in its Food Outlook.

Still, it said that supplies of staple food crops were more ample now, lessening the risk of a similar crisis. But it cautioned that “world prices have risen alarmingly and at a much faster pace than in 2007/2008."

The agency revised its forecast for world cereal production downward, saying it would shrink by 2%. The agency, which had previously forecast a 1.2% expansion in production, said supply shortfalls because of bad weather were to blame.

As a result, most cereal stocks were expected to decline sharply, and production should be increased to meet consumption and offset this drop, it said. Only rice reserves are expected to increase.

“Given the expectation of falling global inventories, the size of next year’s crops will be critical in setting the tone for stability in international markets," the report said. “For major cereals, production must expand substantially to meet utilisation and to reconstitute world reserves."

FAO noted that over the past six months, prices have increased for most agricultural commodities, the result of poor weather, fluctuations in currency markets and other factors. Sugar prices, which recently surpassed 30-year highs, were another important reason.

Prices shot up most sharply in August when Russia imposed a wheat export ban after severe drought hurt harvests across the region. In October, Ukraine, another major grain exporter, imposed quotas on exports because of the drought.

The UN report said the production needed to increase especially in wheat, maize and soyabean to avert further price increases.

The FAO said markets have rarely shown such volatility and uncertainty in such a short period as they have in early months of the marketing season from July to October because of the bad weather.