World food prices will stay high, says UN agency

Updated On: Jun 08, 2011

Global food prices will remain high and volatile for the rest of this year and into 2012, according to the United Nations Food and Agriculture Organisation (FAO). Though production in many sectors is up, rising demand will absorb most of the higher output.

Earlier this year, there were hopes that prices might fall. But according to the latest edition of the the UN agency's twice yearly Food Outlook analysis, the food market was badly hit by a host of unpredictable factors.

These include the catastrophe in Japan, an unprecedented wave of political unrest in North Africa and the Middle East, and the strong increase in oil prices. Soaring oil prices pushed food prices higher as they increase the cost of food production and transportation.

Food production was also affected by weather conditions.

Rice cultivation in Bangladesh, Indonesia, the Philippines and Vietnam was up significantly despite bad weather, but poor growing conditions virtually suppressed growth in China and caused output to dip in Laos, Myanmar, Thailand, South Korea and Pakistan. That said, global production of rice is still expected to increase to a record harvest of 463.8 million tonnes, up two percent over last year.

Due to strong performance by rice growers and other cereal producers, overall food prices actually fell slightly between April and May. But prices remain close to the food crisis levels of 2007-2008.

Meat and dairy prices are extremely high, and the UN agency's report highlighted the strong demand for meat and dairy imports in Asia. Trade in pig meat has shot up, with pork prices registering the highest increase.

"The general situation for agricultural crops and food commodities is tight with world prices at stubbornly high levels, posing a threat to many low-income food deficit countries," said David Hallam, Director of FAO's Markets and Trade Division. Countries in Asia, Africa and Latin America will be hit the hardest.

Report and Analysis: World food prices set to remain high [FAO, 7 June 2011]

Full Report: Food Outlook June 2011 (PDF) [FAO, 7 June 2011]

The FAO Food Price Index, which measures price changes for a food basket of cereals, meat, dairy, oilseeds and sugar, fell by 1 percent between April and May. But prices were still 37 percent above the same period last year.

The slight drop in prices came from good production of cereals such as rice and grain. Sugar production is also healthy; while sugar markets experienced a sharp surge, prices have retreated in recent months. Sugar production is currently expected to surpass consumption for the first time since the food crisis in 2007-2008.

But oilseed prices have risen sharply due to a tightening supply and demand balance.

Prices for meat and dairy are hitting record levels due to climbing costs of production, low animal inventories, and virtually exhausted product stockpiles. High feed prices and disease outbreaks are also expected to limit the expansion of global meat production.

Fish markets have also gone up, following two consecutive years of low prices. Production in 2011 is heading to a record, but prices will remain up due to strong demand from developing countries.

Report and Analysis: Food prices set to stay high, says UN food agency [BBC News, 7 June 2011]

Higher food prices could mean poor countries will see food import costs rise by up to 30 percent. That would mean them spending 18 percent of their total import bills on food this year, compared with the world average of 7 percent.

The next few months will be critical in determining how major crops and overall food production will fare this year.

The FAO says although prospects are encouraging in some countries, such as Russia and Ukraine, weather conditions could hamper wheat and maize production in Europe and North America.

Report and Analysis: World 2011 grain output seen up, prices high -FAO [Reuters, 7 June 2011]

However, FAO senior economist Abdolreza Abbassian warned that even good production "is probably not sufficient to build up stocks. So we are going to see this high price situation continue".

International charity Oxfam, which last week said food prices could double in the next 20 years as the world struggles to raise output, urged G20 farm ministers to start rebuilding the global food system when they meet at the end of June.

"They must regulate the commodity markets, reform flawed biofuels policies which encourage companies to divert food into fuel, and they must help poor countries scale up their food reserves," Luca Chinotti, Oxfam Policy Advisor, said in a statement.

Meanwhile, the role of commodities traders has also come under the spotlight. Some blame speculative trading for pushing prices artificially high.

Studying the futures market, the UN agency's report highlights some of the differences in the way investors behaved in the price surge of 2010-11 versus the food crisis in 2007-08.

According to experts, much has been done to improve market transparency but more is needed.

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