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UN Warning: Food prices may rise by up to 20%

November 17 2010 at 11:34 AM
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[linked image] "Prices of wheat, maize and many other foods traded internationally have risen by up to 40% in just a few months"

Poor harvests put global food reserves under pressure, with African and Asian countries likely to be worst hit
by John Vidal, environment editor, Wednesday 17 November 2010

The UN today warned that food prices could rise by 10%-20% next year after poor harvests and an expected rundown of global reserves. More than 70 African and Asian countries will be the worst hit, said the Food and Agricultural Organisation in its monthly report.

In its gloomiest forecast since the 2007/08 food crisis, which saw food riots in more than 25 countries and 100 million extra hungry people, the report's authors urged states to prepare for hardship.

"Countries must remain vigilant against supply shocks," the report warned. "Consumers may have little choice but to pay higher prices for their food. The size of next year's harvest becomes increasingly critical. For stocks to be replenished and prices to return to more normal levels, large production expansions are needed in 2011."

Prices of wheat, maize and many other foods traded internationally have risen by up to 40% in just a few months. Sugar, butter and cassava prices are at 30-year highs, and meat and fish are both significantly more expensive than last year.

Food price inflation fuelled by price speculation, the searing heatwave in Russia in the summer and heavy trading on futures markets is now running at up to 15% a year in some countries. According to the UN, international food import bills could pass the $1tn mark, with prices in most commodities up sharply from 2009.

Extreme volatility in the world markets has taken the UN by surprise and forced it to reassess its forecasts for next year. "Rarely have markets exhibited this level of uncertainty and sudden turns in such a brief period of time. World cereal production this year, which is currently put at 2,216m tonnes, is 2% below 2009 levels, 63m tonnes less than the forecast reported in June," said the authors.

"Contrary to earlier predictions, world cereal production is now forecast to contract by 2% rather than to expand by 1.2%, as anticipated in June," they said.

Global food reserves, which currently stand at around 74 days, are now expected to decrease significantly in the next few months. "Cereal reserves may drop by around 7%, barley nearly 35%, maize 12% and wheat 10%. Only rice reserves are expected to increase, by 6% next year," said the report.

Much now hangs on next year's harvests, it said. "International prices could rise even more if production next year does not increase significantly especially in maize, soybean and wheat. Even the price of rice, the supply of which is more adequate than other cereals, may be affected if prices of other major food crops continue climbing."

But food analysts said the prospects for a bumper world harvest next year were slim. "2011 will not be a good harvest. The condition of winter wheat crops is not good. Neither the US nor Russia are expecting good harvests," said Lester Brown, founder of the Washington-based Worldwatch Institute.

"The poorest will suffer the most because they feel the effect of price rises directly. In the US and Europe, wheat may only make up 10% of the price of a loaf of bread."

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A food crisis could overtake the world in 2011

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November 18 2010, 10:30 PM 

Climate Change and Disease Will Spark New Food Crisis Says UN

by Sean O'Grady, Economics Editor
November 18, 2010 by The Independent/UK

A food crisis could overtake the world in 2011, according to the Food and Agriculture Organisation, an agency of the United Nations.

Climate change, speculation, competing uses such as biofuels and soaring demand from emerging markets in East Asia are the factors that will push global food prices sharply higher next year, claims the FAO.

The FAO warns the world to "be prepared" for more price hikes and volatility if production and stocks do not respond. Price hikes of 41 per cent in wheat, 47 per cent in maize and a third in sugar are foreseen by the FAO. The last time that happened it sparked riots from Mexico to Indonesia.

In its latest Food Outlook the FAO says that the prices of many staple crops will rise by up to half next year, with many returning to the peaks seen during the food crisis of 2008, or even exceeding them in some cases. Apart from driving inflation higher in Britain and the rest of the Western world, another bout of food price hyperinflation has grim implications for the poorest people on the planet, even now hardly able to afford to feed themselves.

The FAO's broad global index of food prices has risen to 197.1 points, up about 5 per cent on the previous month alone, and already beyond the levels seen in the initial stages of the prices spikes in 2007 to 2008.

The report states: "Following a series of unexpected downward revisions to crop forecasts in several major producing countries, world prices have risen alarmingly and at a much faster pace than in 2007-08.

"For major cereals, production must expand substantially to meet utilisation and to reconstitute world reserves and farmers are likely to respond to the prevailing strong prices by expanding plantings."

The main obstacle identified by the FAO standing in the path of such an expansion in food production is the potentially more lucrative use of crops for biofuels and non-grain or non-food crops such as sugar, cotton and soya; "Against this backdrop, consumers may have little choice but to pay higher prices for their food. 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."

Environmentalists will be especially concerned that the FAO explicitly acknowledges climate change as a factor in jeopardising food supplies. The FAO say that "adverse weather effects are undoubtedly a primary driver of wheat production shortfalls and, with climate change, may increasingly be so". If that does indeed prove to be the case then food prices seem set for a rise to levels unprecedented in modern times.

Wheat rust, a long-term problem for cereals farmers, has become an even more intractable enemy. It can have devastating effects. The last major set of epidemics in North America during the 1950s resulted in more than 40 per cent of the wheat crop being lost. A "new virulent form", designated as Race Ug99 has been spreading from East Africa, and is "migrating and mutating rapidly". "Most global commercial wheat cultivars are susceptible to Ug99" say the FAO, and "in addition, new, highly aggressive races of stripe rust are devastating wheat crops in several regions".

Recognising the role that speculators can play in pushing prices and volatility higher in crops not covered by restrictions on their activities, the Fao's chief grains economist Abdolreza Abbassian, said: "There is no doubt speculative activities have brought into the market a great deal of volatility." But he added there was "no proof" that speculators have driven up prices to near record levels.

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