World countries in danger of facing 'food price shock'

The UN’s Food and Agriculture Organization (FAO) has raised the alarm on the potential danger of a “food price shock”, specially for the poor people in developing countries, says an article posted on Philstar.com.

The FAO has announced that its food price index - a basket tracking the wholesale cost of staple commodities like rice, wheat, corn, vegetable oils, dairy products, sugar and meats - jumped to 214.7 points, above the peak of 213.5 set in June 2008.

Abdolreza Abbassian, senior economist at the FAO in Rome, told the Financial Times that the prices of agricultural commodities are likely to rise further. “It will be foolish to assume that this is the peak,” he said.

Even before the warning, many countries including China are already struggling with rising food prices. It has become such a political challenge so that in the case of China, taming inflation has become a top priority, even if it means having to move up the value of the yuan against the dollar faster than usual.

“The world faces a food price shock,” the FAO economist told the Financial Times, even as he warned that the spike could lead, “if prolonged several months, to a food crisis.” Food commodity traders are reported to be worried that prices could rise further due to weather conditions.

The La Niña weather phenomenon, now causing drought in key growing areas of Argentina, Brazil and the US may intensify. The same phenomenon causes an abundance of rain in our part of the world as in the extensive flooding now being experienced in Northern Australia and in some areas of the country like Bicol and parts of Mindanao.

According to Businessweek, there is an added pressure on food prices: recovering economies. Ephraim Leibtag, US Agriculture Dept. food price forecaster told BusinessWeek: “Increased global trade coming out of the recession, some increased consumer demand, and higher energy and commodity costs for food production” will boost prices. The USDA expects a rise in oil prices to lift demand for ethanol by 5.1 percent in the U.S., which will affect corn prices. The agency foresees U.S. food inflation of 2 percent to 3 percent, the highest since 2008.

The FAO does not see demand falling. “Consumers may have little choice but to pay higher prices,” it says in its November price outlook. The good news, the FAO official pointed out, is that thus far, we are seeing relatively stable prices for rice, one of the two most important agricultural commodities for global food security. Rice is the staple for more than three billion people in Asia and Africa. It hit an all time high of more than $1,000 per ton in 2008, a situation we have been accused of instigating. But rice is now trading at $535 a ton.

The NFA last week said we have more than 40 days buffer stock of rice or about 10 days more than the required 30 days. We have not yet moved to buy rice from the international market as the agriculture department indicated that we will most likely import less than half of what was imported last year. But with other countries already in the market, there are also fears that we may be left out unless we go to the market soon.

The Financial Times reported that in the case of wheat, the cost is fast rising because of poor harvests last year in Russia, Ukraine and elsewhere. The DTI last week also allowed the price of the Pinoy Tasty sliced bread to go up, citing this continued rise in the price of wheat and also sugar. The prices of corn, used for poultry and livestock feed, are also fast rising and could soon be reflected in the prices of meat and poultry products.

There are so many factors that influence the prices of agricultural food commodities these days. These commodities are affected by currency movements and financial markets as well as agricultural and trade policies of governments.

It isn’t just the developing world that’s worried. French President Nicholas Sarkozy has identified food price volatility as a priority as France assumes the chair of the Group of 20 leading economies this year. World Bank President Robert Zoellick cited food price volatility as a threat to global growth and social stability in an op-ed piece at the Financial Times. This is because, Zoellick wrote, food accounts for a large share of tight family budgets in the poorest countries.

“When prices of staples soar, the poor bear the brunt. Without global action, people in poor countries will be deprived of adequate and nutritious food, with tragic consequences for individuals and for the future prosperity of their countries,” Zoellick warned. The overarching goal, the World Bank President urged the G-20, is to ensure that the most vulnerable people and countries are not denied access to nutritious food.”