Food crisis fears as global prices hit record high

Rudy Ruitenberg January 7, 2011

PARIS: Global food prices last month were the highest in records dating to 1990, exceeding 2008 levels that sparked deadly riots across the world.
An index of 55 food commodities tracked by the United Nations' Food and Agriculture Organisation rose for a sixth straight month to 214.7 points, above the previous high of 213.5 in June 2008, the agency said in a monthly report.
A senior economist at the FAO in Rome, Abdolreza Abbassian, told the Financial Times the increase was "alarming" but that the situation was not yet a crisis similar to 2007-08, when food riots affected more than 30 poor countries, including Haiti, Bangladesh and Egypt.
''The world faces a food price shock,'' he told the paper, adding that a prolonged spike could lead to a food crisis.
''Things could become explosive again … that's what people are concerned about,'' said Daniel Gustafson, the director of the FAO's Washington office.
Sugar climbed for a third year in a row and corn jumped the most in four years on the Chicago futures exchange. Food prices may rise more unless the world grain crop increased ''significantly'' this year, the FAO said in November.
At least 13 people died last year in Mozambique in protests over plans to raise bread prices.
Mr Abbassian said that ''there is still, unfortunately, the potential for grain prices to strengthen on the back of a lot of uncertainty''.
''If anything goes wrong with the South American crop, there is plenty of room for them to increase.''
In December, the cost of food was up 25 per cent from a year earlier, based on the FAO figures, after Chinese demand strengthened and Russia's worst drought in 50 years devastated grain crops.
Last month's year-on-year rise compares with the 43 per cent jump in food costs in June 2008. Record prices for fuel, weather-related crop problems, increasing the demand from the growing Indian and Chinese middle classes, and the push to grow corn for ethanol fuel all contributed to the crisis that year.
''In 2008 we had rapid increases in petroleum prices, fertiliser prices and other inputs,'' Mr Abbassian said. ''So far, those increases have been rather constrained. It doesn't really reduce the fear about what could be in store in the coming weeks or months.''
Global food production will have to rise 70 per cent by 2050 as the world population expands to 9.1 billion from about 6.8 billion last year, the FAO has said.
In response to the 2008 crisis, countries from India and Egypt to Vietnam and Indonesia banned exports of rice, a staple for half the world. Skyrocketing food prices sparked protests and riots in more than 30 poor nations including Haiti, Somalia, Burkina Faso and Cameroon.
In 2008 countries drew from global food reserves to replace the lost supply. Without that cushion, the overall market is more volatile.
Mr Gustafson cautioned against assuming high prices now would lead to unrest. The landscape had changed rapidly.
However, if a few big food exporters experienced extreme weather such as a drought, prices could rise, and that could bring unrest, he said.
Sugar and oilseeds had a disproportionate effect on the food index because it was based on trade values for commodities, Mr Abbassian said. The price of staples, including rice, was lower than in 2008, he said.
The surge in the index is mostly due to rising costs for corn, sugar and vegetable oil. These were less important than rice and wheat for food-insecure countries, the Financial Times reported. Bloomberg, Associated Press

http://www.smh.com.au/world/food-crisis-fears-as-global-prices-hit-record-high-20110106-19hni.html