Global Food Prices Will Probably Be Sustained at Record This Year, UN Says

Record food prices are likely to be sustained this year because of high crude oil costs and smaller crops, said the United Nations Food & Agriculture Organization.

“The potential risk is crude oil may continue to go higher, and if floods and drought happen again, we’ll face further price increases,” Hiroyuki Konuma, the FAO’s regional representative in Asia, said in an interview today. “Now we’re in a much better situation than the crisis in 2008.”

Global food costs advanced to an all-time high in February, according to an index compiled by the FAO. The increase has contributed to riots across North Africa and the Middle East that toppled leaders in Egypt and Tunisia. Prices surged as bad weather ruined crops from Canada to Australia and Russia banned grain exports after its worst drought in a half-century.

“We will get an increase in production but not sufficient to ease the market,” said Abdolreza Abbassian, a senior FAO economist. “High, volatile prices will continue in 2011 and even in 2012,” he said in a video briefing today in Bangkok.

An index of 55 food commodities climbed 2.2 percent to a record 236 points last month, from 230.7 in January, the UN said March 3. Wheat advanced 60 percent in Chicago in the past year, corn gained 92 percent and soybeans rose 46 percent. Prices of palm oil, the world’s most consumed cooking oil, reached a 35- month high of 3,967 ringgit a metric ton on Feb. 10.

Corn, Wheat

Turmoil in oil-producing countries including Libya has pushed crude above $100 a barrel. Higher crude prices make biofuels produced from crops more competitive, while raising the cost of tractor fuel and fertilizer for farmers.

Global food prices probably will rise in the first half of this century because of an expanding population and higher incomes, slower crop-yield growth and the effect of climate change, Ross Garnaut, the Australian government’s climate-change adviser, said last week in Canberra.

Corn and wheat are under pressure from supply shortages as climate change and natural disasters have reduced production, leading to higher food prices, according to Konuma.

“We have to be extremely cautious about what is going to come in 2011-2012,” Abbassian said. “Spring is going to be extremely critical, when farmers will decide what crop they’re going to plant. In many major producing regions, we have already hit maximum acreage. So the war is going to go on in terms of acreage.”

Food Security

Wheat production is estimated to total 645.4 million tons, lower than the forecast 662.7 million tons of demand for the year 2010-2011, according to the U.S. Department of Agriculture.

Corn output is estimated at 814.3 million tons, compared with 836 million tons of demand, while rice production is estimated at 451.6 million tons, slightly above consumption of 451 million tons, it said.

Investments in agriculture to boost output and productivity are important to improve food security, Konuma said. About 947 million people still live in poverty in Asia, the FAO says.

World food production will have to increase by 70 percent by 2050 to meet increasing demand from an expanding global population, which is projected to rise to 9.1 billion by 2050 from 6.9 billion at present, Konuma said.

Rice prices rose to records in January in Indonesia, the fourth-most-populous nation, prompting the government to suspend import duty on the grain, FAO said last week. Prices remained at record highs last month in Bangladesh, the largest South Asian rice buyer, because of low inventories, according to the report.

North Korea and Afghanistan also face the risk of food shortages and rising prices, Konuma said.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.