World Food Prices at Fresh High

In Europe, Global Food Crisis, News Headlines

Global food prices rose to a fresh high in December, according to the UN’s Food and Agricultural Organisation (FAO).

Its Food Price Index went above the previous record of 2008 that saw prices spark riots in several countries.

Soaring sugar, cereal and oil prices had driven the rise, the report said.

The index, which measures monthly price changes for a food basket composed of dairy, meat and sugar, cereals and oilseeds, averaged 214.7 points last month, up from 206 points in November.

It stood at 213.5 points at the high of June 2008 – sparking violent protests in countries including Cameroon, Haiti and Egypt.

There were further riots over food prices in Mozambique in September last year.

However, despite high prices, FAO economist Abdolreza Abbassian said that many of the factors that triggered food riots in 2007 and 2008 – such as weak production in poor countries – were not currently present, reducing the risk of more turmoil.

But he added that “unpredictable weather” meant that grain prices could go much higher, which was “a concern”.

‘Tight situation’

The current spike in prices is being caused primarily by increases in the cost of sugar and, more importantly, cereals, according to the International Food Policy Research Institute.

Price rises from Nov 2010 to Dec 2010
Sugar – 6.7%
Cereals (including wheat, rice, corn) – 6.4%
Oils – 8%
Source: FAO

The price of wheat in particular has risen sharply. This is because wildfires last year in Russia, which accounts for 11% of global exports, resulted in an export ban, the institute’s director of markets, trade and institutions, Maximo Torero, told the BBC.

The recent floods in Australia, which also accounts for 11% of global exports, has compounded the problem, he said.

The price of corn has also risen, because of greater support for biofuels in the US and the increased price of oil, which makes biofuels more attractive.

Droughts in Argentina, the world’s second biggest exporter of corn behind the US, have also pushed the price up, Mr Torero said.

“The situation is very tight. If we have more natural disasters, we could have a problem,” he said.

Australian floods

Overall global food prices have risen by an average of more than 80% in the past 10 years, according to figures from the FAO released last year.

Analysts say that as well as environmental issues, fast-growing world population and the increased demand for biofuels has further put pressure on crop supplies.

“Rising food prices will have an effect almost all over the world but especially in poor countries where food and energy are the major things people spend their money on,” said George Magnus, senior economic adviser to UBS.

“There’s a risk, I wouldn’t say a huge risk, but some risk of higher energy prices and higher food prices being very destabilising in some countries.

“We saw that in 2008 and in Mozambique last year and it’s something to watch.”

‘Particularly worrisome’

The news came amid concerns about inflation in the prices of other key commodities.

Copper prices went into 2011 at record highs – in a rally driven by increased demand from the global economic recovery and that fact that most countries are holding low stockpiles.

And the International Energy Agency (IEA) said on Wednesday that the current high price of oil would threaten economic recovery in 2011.

Oil import costs for countries in the Organisation for Economic Co-operation and Development had risen 30% in the past year to $790bn (£508bn), it said.

Mr Magnus said that if oil returned above $100 a barrel this would be “particularly worrisome”.

“It could make central bankers nervous, leave them thinking that inflation was getting out of hand and prompt them to raise interest rates faster than they should. That would damage an already fragile recovery,” he said.

“And higher commodity prices could sap the world’s ability to consume because more and more of our income will be going on energy and food.

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