Food Prices Reaching Crisis Levels?
By Guy Isherwood
THE AGRICULTURE SECTOR has experienced a number of severe shocks in recent years with record high oil prices, commodity price spikes, food security fears and resultant trade restrictions – not to mention the most serious global economic recession since the 1930s. The greatest impact has been on the poor, especially in developing countries, with the world’s hungry now estimated at over 1 billion. Agriculture has shown remarkable resilience, particularly in the OECD area, with strong supply response
to high prices and with continuing, albeit dampened, demand growth during the crisis. This year, a degree of normality has returned to many markets
with production closer to historical levels and demand recovering. Still, many governments remain concerned about the potential for a repetition of significant shocks to such key factors as energy prices, exchange rates, and/or the macroeconomic performance of key countries and regions, and about the consequences that such shocks have on market volatility. Food prices are back to their highest level for over two years
according to the UN’s Food and Agriculture Organisation (FAO). Moreover, commodity price pressures show little sign of abating and food prices overall have undergone a surge this year, many reaching multi year highs. In the FAO’s latest Food Outlook Global Market Analysis, the
organisation’s index of food prices is at its highest level since July 2008. The index, which measures average monthly price changes for a basket of cereals, oils, dairy, meat and sugar, has risen substantially since its last report in June. Now, the FAO fears consumers might have little choice but to continue to pay more for their food in future. It said the world had to remain vigilant against further supply shocks. The FAO blamed the worsening outlook for crops in key producing nations and the weakening of the US dollar since mid-September. The FAO report warns that food price increases are “dangerously
close” to crisis level. The bill for global imports of food could exceed US$1 trillion this year, noting that, as a result of lower harvests in key producing countries, reserve stocks will have to be used and this will lead to a further restriction in supplies next year. Whilst this may lead to more planting by farmers to take advantage of good prices for their produce, the FAO caution: “Cereals, however may not be the only crops farmers will be trying to produce more of, as rising prices have also made other commodities attractive to grow, from soybeans to sugar and cotton … consumers may have little choice but to pay higher prices for their food … the international community must remain vigilant against further supply shocks in 2011 and be prepared.” The FAO continue: “Sharp increases in international quotations
for grains, sugars and products in the oilseed complex in recent months are already a cause for concern … many of these commodities constitute major feedstock ingredients for the livestock or biofuel sectors … global competition for securing foodstuffs is set to intensify.” Another pressure on food prices is climate change. The FAO
Food prices are back to their highest level for over two years
70 December 2010
notes that “adverse weather effects are undoubtedly a primary driver of wheat production shortfalls and with climate change, may increasingly be so.” Current food crises in the Sahel region of West Africa and in the Horn of Africa are in part produced by erratic changes in weather patterns thought by experts to be
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