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Global Food Prices Set to Spike Higher Again

Commodities / Food Crisis Nov 21, 2010 - 08:42 AM GMT

By: Pravda


The latest report issued by the UNO indicates that food prices are yet again set to reach record levels due to the fact that it is more economical for farmers to produce commodities which have better paybacks than to produce financially less attractive foodstuffs which feed people. Once again, the focus on the bottom line is sending millions into food insecurity in a world where there are one billion people undernourished.

The latest edition of the Food Outlook report, produced by the UN Food and Agriculture Organization, states that food import bills in the world's poorest countries are to rise by 11 per cent in 2010 and 20 per cent in low-income food-deficit countries, while over the next decade, food prices could rise by as much as 40 per cent.

In round numbers, the report states that food import bills may pass the one trillion-USD mark in 2010, reaching the record levels registered in 2008. Most agricultural commodities have seen their prices shooting up in recent months, some markedly. The FAO Food Price Index registers an increase of 34 points since the June report, at 197 points for October, only 16 short of the record in June 2008.

With the outlook for crop production in the major producing countries looking bleak, a run on stocks is expected, pushing the brokered prices higher as demand increases. The weakened USD is another reason for the bullish trend in food prices.

Unless there is a substantial rise in food production next year, warns the report, the stocks will shrink alarmingly - barley by up to 35%, maize by 12% and wheat by 10%. Only rice stocks are expected to increase (10%). FAO claims: "With the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011 and be prepared".

The report adds that "cereals 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". This could mean that crop production responses are insufficient and "consumers may have little choice but to pay higher prices for their food".

The price of sugar has surpassed 30-year highs, butter has hit an all-time record, fish is increasing markedly. The FAO Agriculture Outlook 2010-2019, a report on the next decade, claims that global food prices of wheat and coarse grain could increase by 40% while vegetable oil and dairy products are expected to increase by even more.

While output of foodstuffs decreases, because alternative crops (such as biofuels) are more attractive to grow, demand will rise, claims the report, which calls for the implementation of a trading system which facilitates movement of food from surplus to deficit areas.

The report also states that given the potential food crisis, it is imperative that fair trading practices are carried out, while information should flow freely in a transparent marketplace.

However, what sort of a system have we created in which not only people's livelihoods, but their very survival, depends on financial games, on deals among brokers which push prices up artificially? This is not a financial game, it is murder.

Timothy Bancroft-Hinchey

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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