COMMODITIES

Fears of new food crisis as prices soar

By Javier Blas, Commodities Editor Published: November 17 2010 09:41 | Last updated: November 17 2010 18:18

The bill for global food imports will top $1,000bn this year for the second time ever, putting the world dangerously closeto a new food crisis, the United Nations said. The warning by the UNs Food and Agriculture Organisation adds to fears about rising inflation in emerging countries from China to India. Prices are dangerously close to the levels of 2007-08,said Abdolreza Abbassian, an economist at the FAO. The FAO painted a worrying outlook in its twice-yearly Food Outlook on Wednesday, warning that the world should be preparedfor even higher prices next year. It said it was crucial for farmers to expand substantiallyproduction, particularly of corn and wheat in 2011-12 to meet expected demand and rebuild world reserves.
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But the FAO said the production response may be limited as rising food prices had made other crops, from sugar to soyabean and cotton, attractive to grow. This could limit individual crop production responses to levels that would be insufficient to alleviate market tightness. Against this backdrop, consumers may have little choice but to pay higher prices for their food,it said. The agency raised its forecast for the global bill for food to $1,026bn this year, up nearly 15 per cent from 2009 and within a whisker of an all-time high of $1,031bn set in 2008 during the food crisis. With the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011,the FAO added. In the 10 years before the 2007-08 food crisis, the global bill for food imports averaged less than $500bn a year. Hafez Ghanem, FAO assistant director-general, dismissed claims that speculators were behind recent price gains, saying that supply shortages were causing the rise. Agricultural commodities prices have surged following a series of crop failures caused by bad weather. The situation was aggravated when top producers such as Russia and Ukraine imposed export restrictions, prompting importers in the Middle East and North Africa to hoard supplies. The weakness of the US dollar, in which most food commodities are denominated, has also contributed to higher prices. The FAOs food index, a basket tracking the wholesale cost of wheat, corn, rice, oilseeds, dairy products, sugar and meats, jumped last month to levels last seen at the peak of the 2007-08 crisis. The index rose in October to 197.1 points up nearly 5 per cent from September. Agricultural commodities prices have fallen over the past week amid a sell-off in global markets, but analysts and traders continue to expect higher prices in 2011.
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