Food Prices May Extend Advance, Adding to Inflationary Pressure, FAO Says

Food prices may extend gains, driven by higher crude oil costs, said the United Nations Food & Agriculture Organization, leading to accelerating inflationary pressure from China to the U.S.

“For the time being, food-price increases may continue because of high oil prices,” Hiroyuki Konuma, the FAO’s regional representative in Asia, said in an interview yesterday in Bangkok. “We’re very worried about volatile crude oil prices. There is no sign that prices will decline sharply.”

Global food costs rose to near a record in April as grain costs advanced, increasing inflationary pressure from Beijing to Brasilia and spurring central banks to raise interest rates. Food-price spikes have driven 44 million people into poverty since June last year, the World Bank said, and also contributed to riots across North Africa and the Middle East that toppled leaders in Egypt and Tunisia.

An index of 55 food commodities rose to 232.1 points last month from 231 points in March, the Rome-based FAO said in a report on May 5. The gauge climbed to an all-time high of 237.2 in February before dropping 2.6 percent in March. A further 10 million people may become impoverished if the index climbs 10 percent, the World Bank said April 16.

The decline in March “might not represent a reverse in the long-term trend as the overall conditions that have been forcing food prices higher have not changed,” Konuma said.

Meat, Oilseeds

Global food prices may rise 4.4 percent to a record 240 points by the end of the year, driven by demand for meat, oilseeds and grains used to make ethanol, William Adams, a fund manager at Zurich-based Resilience AG, which has $22.2 million of assets, said April 26.

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

“Planting area for wheat and corn appears to be on an increasing trend because farmers will choose to plant the most profitable commodity,” which will help slow food-cost increases, Konuma said.

Grain production in the 2011-2012 crop year may rise to 2.27 billion metric tons from an estimated 2.18 billion tons in the current year, the U.S. Department of Agriculture said May 11. Oilseed output may advance to 459.2 million tons next season from 449.3 million tons, it said.

Corn has surged 79 percent in the past 12 months on speculation that more planting in the U.S., the world’s largest grower, won’t be sufficient to rebuild global stockpiles. Wheat rose 54 percent over the same period and soybeans gained 38 percent as flooding ruined crops in Canada and Australia and drought reduced harvests in Russia and Europe.

To contact the reporter on this story: Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net

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

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