FAO: Food Prices Hit New Peak

9 March 2011

A UN measure of international food prices this week climbed to its highest level since the index's creation in 1990, surpassing peaks reached during a commodity price spike in 2008.

The increase in the index -- for the eighth consecutive month -- concealed considerable variation among different commodities.

Sugar prices, for instance, have decline slightly since January. In contrast, cereals, dairy, meat and oilseeds continue their upward creep.

A sugar expert at the UN Food and Agriculture Organization cautioned that the slight decline in prices "was due fluctuations outside of the sugar market fundamentals." Emphasising that "the market remains tight" he told Bridges that "the surplus that we estimated [this year] is being reduced from what we originally thought." Exchange rates, futures market movements and changes in perceptions explained the slight decline even though sugar prices still remain at historic highs. The official also added that major producers such as Brazil were shifting substantial amounts of cane output to sugar rather than ethanol since prices were so high.

Prices for maize, which are now well above the 2008 records, are the highest among cereals. This has been blamed on low stocks and high demand in international markets as well as within the US, where corn is converted into ethanol for use as fuel.

Brian Wright, of the University of California, notes that one third of US corn production is now used for biofuels. He believes that government policies encouraging the use of biofuels may be partially responsible for higher and more volatile prices and has argued for flexibility in ethanol blending mandates.

Higher prices, such as in Somalia, where prices for the cereal have increased 141 percent since last October, and in Kenya, facing an increase of 21 percent since January, are likely to increase the number of people at risk of undernourishment, according to the UN Food and Agriculture Organization. Fears of poor harvests in South Africa due to a lack of rain are driving prices up for local animal feed and exports to Asia.

Prices for wheat have also risen, albeit not as quickly. Droughts and flooding in major exporters such as Australia have pushed up prices, even as worries have eased over crippled wheat production in China, the world's largest producer,  thanks to rain and snow that brought moisture to farmland at a critical juncture. An FAO official told Bridges that the "wheat crop [in China] will be affected but not as much as some had feared." Moreover, fearing food price driven inflation, Beijing had already acted by increasing support to farmers and regulating consumer prices.

Prices for rice -- a key staple in many developing countries -- have increased. However, they continue to remain well below their 2008 peaks, which has been one of the key differences about the current rise in prices. Ample export availability from major suppliers and the absence of unusual weather has kept prices from spiking. The fact that "no one has introduced export restriction" was a key factor in keeping prices below 2008 levels, an FAO official said.

The FAO attributes the marginal increases in rice prices since January to the strength of the Thai baht against the US dollar.

The People's Daily Online, a newspaper published by the Central Committee of the Communist Party of China, made the case that "China's food security [is] fully guaranteed." The country's reserves are high, it said, noting that China remains "95 percent self sufficient" in grains.

IMF paper: Structural factors to blame

Although low stocks and bad weather have been blamed for the increase in prices for key farm commodities, a recent International Monetary Fund report suggested that rising incomes and increasing demand for animal protein in developing countries are the major forces behind long term upward price trends.

The authors, Thomas Helbling and Shaun Roache, argue that current prices, once adjusted for inflation, are well below those recorded during the Great Depression of the 1930s, and are therefore likely to increase. Although, they predict higher prices in the longer term they add that in absence of more bad weather, "the recent food price surge can be expected to ease when the new Northern Hemisphere crop season begins later this year."

They predicted that it would take years for the food supply to become sufficiently resilient to demand.

Nonetheless, Olivier De Schutter, Special Rapporteur on the Right to Food, told the UN Human Rights Council that small-scale farmers could double food production within 10 years in critical regions by using ecological methods, contributing to sustainable growth in the food system. Adopting such methods, however, is also likely to take years.

ICTSD reporting. "Global Food Price Monitor," UNITED NATIONS FOOD and AGRICULTURE ORGANIZATION, 3 March 2011; "Record Food Prices May Persist as Economic Growth Boosts Demand, IMF Says," BLOOMBERG, 4 March 2011; DeSchutter, Olivier (2010), "Agroecolgy and the Right to Food" UNITED NATIONS HUMAN RIGHTS COUNCIL, A/HRC/16/49; Helbling, Thomas and Shaun Roache (2011), "Rising Prices on the Menu" FINANCE & DEVELOPMENT 48 (1), March 2011; "China's food security fully guaranteed." PEOPLE'S DAILY ONLINE, 9 March  2011.

This article is published under
16 January 2014
In a landmark move, the US issued a formal challenge on Monday against China's compliance with an adverse WTO ruling, marking the first time that the Asian economic powerhouse has faced such a claim...
16 January 2014
Indonesia on Sunday implemented a controversial ban on exports of raw minerals in an effort to help stimulate domestic processing. Cited as one of the most significant economic policy decisions of...