Governments worldwide will increase their role in global food markets and may boost stockpiles and subsidies or impose trade curbs to head off the protests that have rippled through the Middle East, commodity traders said.
“Greater political intervention in food matters is only to be expected,” Alan Winney, chairman of Emerald Group Australia Pty Ltd., said in an interview at a sugar-industry conference in Dubai. “Governments will be careful to take preemptive measures to prevent increases in food prices,” said Winney.
Countries across Africa to Asia are increasing imports or releasing supply from state reserves to cool inflation as rising demand and adverse weather cuts harvests and pushes food prices to a record. A revolt in Libya widened at the weekend, with leader Muammar Qaddafi’s son warning that a civil war would risk the country’s oil wealth and invite a return of colonial powers.
“Food inflation is there to stay this year as cereals, soft commodities are all affected by supply contraction,” said Vijay Iyengar, managing director of Agrocorp International Pte., who’s traded agricultural commodities since 1986. “Governments will have to subsidize” staples, including sugar, Iyengar said.
The higher costs of wheat, sugar and dairy products sent the United Nations’ World Food Price Index to an all-time high last month. The jump has contributed to democratic revolts in Tunisia and Egypt, as well as other Arab nations. Saif al-Islam Qaddafi said in a televised address Libya is “not Tunisia and Egypt” after thousands demonstrated in the city of Benghazi.
Wheat climbed to $9.1675 a bushel on the Chicago Board of Trade on Feb. 14, the highest price since August 2008, and has surged 71 percent the past year. That compares with a 95 percent gain for corn and a 44 percent jump in soybeans. Sugar prices have doubled since the end of May. There is no U.S. grain trade today due to a public holiday.
Finance ministers from the Group-of-20 nations signaled their concern at the weekend that surging commodity costs are driving global inflationary pressures. Price developments pose challenges “for both consumers and producers,” the G-20 nations said in their statement after a meeting in Paris.
Global wheat harvests may trail demand for a second year, spurring “widespread” hoarding and further price advances, Abdolreza Abbassian, a senior economist at the Food & Agriculture Organization, said Feb. 9. Global corn output will need to rise 6 percent and wheat 3 percent to 4 percent in the 2011-2012 crop season to rebuild global reserves, he has said.
“Wheat may have done its job as far as prices are concerned, while corn may still gain on feed demand,” said Winney. “Farmers can respond to higher grain prices but not to crops like sugar.”
Wheat dropped in Paris to the lowest level in more than three weeks after warmer weather in the U.S. reduced concern of crop damage there. March-delivery milling wheat fell as much as 2.2 percent to 257 euros ($351) a metric ton on NYSE Liffe in Paris, the lowest level since Jan. 25.
Global corn stockpiles are forecast by the U.S. Department of Agriculture to drop at the end of this season to a four-year low, while reserves of wheat will slump 10 percent from a year earlier as harvests lag behind demand. Soybean inventories will drop to a two-year low, the agency said.
Sugar stockpiles will stay low for the next year and the shortage, which drove prices to the highest level since 1980 earlier this month, may last for the first half of this year, broker and researcher Jonathan Kingsman said at the conference.
Some sugar refiners, which depend on imports, have partly wound down operations, Cyrus Raja, general manager at Al Khaleej Sugar Co., the world’s biggest, said at the conference. High food prices prompted India, the second-biggest sugar producer, to put on hold shipments of 500,000 tons after announcing the plan in December, adding to the deficit.
Accelerating food prices sparked riots from Haiti to Egypt in 2008 as economic growth in Asia and the diversion of crops for making ethanol threatened food security for some of the world’s most vulnerable people.
“Three years ago the finger was pointed out at biofuels for the food shortage,” said Patricia Luis-Manso, biofuels manager at Kingsman SA, said at the Dubai conference. “It’s clear to more people that there’s no single factor contributing to food-price increases.”