FAO Sees Record World Food Prices Staying
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January 21 2008
By Robin Pomeroy
ROME, Jan 21 (Reuters) - Record food prices are unlikely to ease in the foreseeable future, as high grain demand and low stocks mean the world remains vulnerable to possible food shocks, a United Nations expert said on Monday.
Efforts to increase wheat output may not be enough to offset soaring demand and bring the cereal off the all-time price highs it is continuing to hit, said Abdolreza Abbassian, grains economist at the Food and Agriculture Organisation (FAO).
"The wheat story is far from over," Abbassian told Reuters in an interview.
He said that if there is the slightest weather problem next year in any major producing country or in any major developing country importer that also produces, such as China or India, wheat prices will soar again.
With global stocks low, a major weather disaster would push the world into real food shortages, he added.
"We have been very careful with this term 'world food crisis'. There are crises but there's not a world food crisis."
Demand from increasingly affluent Asian giants China and India and a crop shortfall in Australia were among the factors which pushed wheat to record prices last year, up as much as 65 percent year-on year, according to the FAO.
Rising food inflation is not limited to grains; meat and dairy prices have also soared on rising demand and the increase cost of fodder.
Higher shipping costs and market speculation have also contributed to price surges which have pushed up grocery bills around the world and sparked protests.
The European Union's decision to suspend its 'set-aside' policy where farmers had to leave at least 10 percent of their land fallow, may bring some relief, but not make a huge impact.
"EU sources are saying there is some increase but probably not as much as they hoped for," Abbassian said, adding that FAO was now less optimistic for increased 2008 wheat production than it had been in its last Food Outlook report, issued in November.
"From what we said in November, which was based on (political) decisions, to what we see today, which is more or less based on the planting record, it looks like wheat production, if it increases, is not going to increase enough to bring prices down substantially."
The demand for bio-fuels in Europe and the United States will also continue to pressure prices of maize and soya.
The United States, which exports around two thirds of the world's traded maize, already last year increased the area under maize cultivation by 18 percent, at least in part to meet the demand for bio-ethanol, used as a fuel in automobiles.
"If the U.S. wants to meet the same demand this year it has to maintain that sort of performance -- which means it may have to plant less of other crops. This is why soya bean markets are reacting rather violently to developments." (Reporting by Robin Pomeroy, Editing by Peter Blackburn)