Food Price Rise Ahead
Global
food prices have inched past records set at the height of a commodity price
boom in 2008. This time - at least so far - products like sugar and oilseeds
are leading the charge, with prices for the cereals such as rice that are
staple foods of the poor still below peak levels. Lowered projected harvests
and stocks are to blame, according to independent reports from the US
Department of Agriculture and the UN Food and Agriculture Organization.
The
FAO’s Food Price Index, which tracks a basket of key commodities, rose last
month to 215 points, surpassing the June 2008 record of 213 points. According to the organisation, the
“global food system is becoming more vulnerable and susceptible to episodes of
extreme price volatility.” It blamed the financialisation
of food commodities, extreme weather events, links between food and energy, and more tightly integrated markets for the
vulnerability. Although prices for nearly all food commodities have risen, the sharpest
increases were concentrated in sugar and vegetable oil.
Sugar
prices, according to the index, are the highest they have been in over twenty
years, following a smaller-than-expected crop in Brazil and flooding in
Australia. Prices for the sweetener have been volatile this month, with many
traders awaiting announcements from the Indian government on how much it will
make available for export.
Key staples may yet see further
price increases, with the FAO and others reporting bleak prospects for this
year’s crops in several large agricultural exporters. La Niña, a weather
phenomenon originating in the Pacific Ocean, has given Argentina unusually dry
weather, leading to smaller than usual outputs of soybeans and corn. The heavy
rains in Australia have affected the wheat crop in addition to sugar. Dryness
in the US is affecting corn and wheat production.
Even
smaller producers are facing challenges at meeting the demands of domestic
markets. Excessive rain interrupted the rice harvest in Madagascar, while
drought hit farm production in Russia and Central America.
Global
cereal production is projected to be lower in 2011 than the previous three
years. Developing country producers are expected to make up some of the
shortfall in developed countries. Rice, among cereals, has the best
stock-to-use ratio - production is expected to be the highest since 2007.
Although wheat stocks are higher than 2007 levels, the FAO projects that it is the
cereal most likely to affected by changes in production.
The rise in food prices has
contributed to inflationary pressures in some major economies. New Delhi and
Beijing have moved to ease the pressure on price-sensitive consumers by
lowering import barriers on some goods while restricting exports of others.
Indian
government reports show food inflation easing. However, soaring prices for some
goods, such as onions, an important and politically-sensitive food, have led
the government to clamp down on hoarders, ban exports and open its borders to
Pakistani imports.
China
is also struggling with growing demand for products such as vegetable oil.
Although the Chinese government had been taking steps in 2010 to ward off
inflation, by lowering transportation fees on the movement of food, it continues
to struggle to keep prices in check.
Although
food prices are a much smaller part of household spending in rich countries,
the European Central Bank has also expressed concern over food-led inflation.
In response to the high prices, and
related riots in places such as Algeria, Robert Zoellick,
a former US trade representative and current president of the World Bank, has
urged governments to prioritise tackling food
security at the upcoming meeting in Washington of the Group of leading 20 economies.
Zoellick wrote in the Financial Times arguing for the
merits of free markets in ensuring food for everyone, calling on donor
governments to rein in export restrictions on humanitarian grounds, provide
better information on stocks and weather, and provide food to those most at
risk.
Others,
such as Duncan Green of Oxfam and Raj Patel of Food First, have stressed the
unique ability of governments to stabilise prices, incentivise food production, and provide food safety nets.
Green criticised Zoellick
for failing to call for land reform in favour of the
rural poor, increased support for agricultural extension services, and a
reversal of government policies that benefit large farms at the expense of
smaller ones. Patel argues that the Indian government should spend more to
provide public safety nets, but is not doing so because of undue fears of
inflation.
The
current FAO warnings contrast starkly with its statements in 2010, when the organisation tried to soothe fears that a crisis was in the
offing.
FAO
officials such as Assistant-Director General Hafez Ghanem, have written about
the need to conclude the Doha Round and to reform developed country
agricultural policies. He argued that “agricultural subsidies in rich countries
limit agricultural growth in developing countries,” while export restrictions
raised prices for the world’s poorest people.
Rising
prices will lead some producers to benefit and others to suffer due to the
complex interplay between what farmers grow, buy and sell. Shortages of critical
crops will continue to pose difficult decisions for policymakers.