Food Security of Less Concern Because of Weaker Demand, UN Agency Predicts

Food security is of less concern in 2010 than in recent years, even as prices rise, because grain stocks are plentiful and a weakened global economy will stunt demand, according to the United Nations’ food agency.

World wheat inventories at the end of May were the highest since 2002, and the amount of rice in storage at the close of July was the largest in seven years, U.S. Department of Agriculture data show. Corn prices have jumped 12 percent in the past three sessions after a USDA report showed output would be less than expected.

Ample wheat and rice inventories will outweigh rising prices because food insecurity is usually based on strong demand, said Abdolreza Abbassian, a senior economist at the UN’s Food and Agriculture Organization. The worst global recession since World War II means demand for grain to feed people and livestock for human consumption will be lower than in 2008, when shortages sparked riots from Egypt to Haiti, he said.

“Economic growth is not as positive as in 2007 or 2008, which is an engine behind demand,” Abbassian said by telephone from Rome. “Stockpiles are not as low as they were in 2007, and petrol energy prices are half as high. Whether these spikes in prices would lead us to a food crisis situation, it is something we do not consider as a possibility.”

Rice Sowing

Because global supply and demand are “fragile,” food security may be compromised if plantings of wheat, rice, corn and soybeans were to decline in the current marketing year that started in June, he said. Rice was harvested from about 155.1 million hectares (383 million acres) in the year through July, down from 159.7 million a year earlier, USDA data show.

About 226.1 million hectares of wheat was harvested in the year through May, up 0.3 percent from the prior year, USDA figures show. This year the harvesting area will shrink 2 percent, according to the U.S. government.

“We need higher production year after another,” Abbassian said. “We have to see what plantings are going to look like next season and if the prices we have right now are going to get higher. In my view, wheat prices and rice prices are testing high levels now. Their potential upside is limited.”

Wheat and rice prices that started rising in June because of adverse global weather will start to affect poorer nations this month because gains in futures markets take 60 to 90 days to reach consumers, Abbassian said. Countries such as Mozambique that were affected in 2008 when wheat and rice surged to records are now better prepared, he said.

Corn Harvest

The crisis two years ago “taught some lessons,” Abbassian said. “Countries are not doing panic buying like they did in 2007 and 2008. They have been a bit more cautious about letting high prices get transferred to poor consumers.”

The USDA report on Oct. 8 that showed corn production would fall 3.4 percent from a year earlier was a surprise, Abbassian said, especially after a Sept. 24 FAO meeting when U.S. delegates assured him that production estimates would remain steady. The drop predicted would reduce reserve stocks before the 2011 harvest to the lowest level since 1997.

“Something like what happened on Friday is totally unacceptable,” he said. “I was surprised to see that there was so much revision. The U.S. delegation was assuring us how good the crop was there. I don’t know what happened between Sept. 24 and Oct. 8 that made them make such a huge revision. I hope it won’t be repeated in the future.”

With the global economy starting to improve and demand from China for grains and oilseeds rising, world supplies may become “tight” if production were to drop in coming years, Abbassian said. Still, ample global stockpiles and slack demand should be enough to prevent a recurrence of 2008’s rioting, he said.

“The situation has the potential to develop into a serious concern, but for time being, it seems like it’s well managed,” Abbassian said. “As we move on to next year, the critical issue is what will happen in terms of planting and production. We have to watch the spring very carefully.”

To contact the reporter on this story: Tony C. Dreibus in London at tdreibus@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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