The Food and Agriculture Organization (FAO) said on Thursday that cheaper food last month reflected declines in corn, wheat and edible oils prices.

Food prices surged during the summer of 2012 due to a major drought in the U.S. but prospects for a rebound in cereal supplies to record levels have reversed the price trend this year.

The FAO price index, which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 201.8 points in August, about 1.9 per cent below July’s level and the lowest since June 2012.

FAO said it expected global cereal production in 2013-14 to increase to a record 2.492 billion tonnes, up 0.5 per cent from its July forecast and 7.7 per cent higher than 2012 output.

FAO senior economist Abdolreza Abbassian told Reuters the prospect of bumper crops was now factored in by markets, so the rate of price declines may ease in coming months.

“We are almost at the bottom. Further declines are likely to be much less than those seen over the past few months,” Abbassian said.

He said the FAO was unlikely to raise its crop forecasts much further but there was some room for downward adjustments.

The FAO said it expected a 10.5 per cent expansion in coarse grain output to 1.285 billion tonnes and a 7.6 per cent rise in wheat production to 710 million tonnes in 2013-14.

The Rome-based agency slightly raised its forecast for world cereal stocks at the close of seasons ending in 2014 to 569 million tonnes, about 13 per cent higher than their opening levels and the highest since 2001-02.

FAO’s price index hit a record peak of 238 points in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa.

In the summer of 2012 the index began surging to levels close to another peak seen in 2008, in which year there were riots, some deadly, in several poor countries.

— Catherine Hornby is a Reuters correspondent based in Rome and reports on the United Nations’ food agencies.

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A surge in food prices over the summer of 2012 fuelled by the worst drought in more than half a century in the United States and dry weather in other major exporters raised fears of a new food crisis such as the one seen in 2008.

But the UN Food and Agriculture Organization’s (FAO) Food Price Index, which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, fell for the third month in a row in December to 209, its lowest level since June, led by declines in cereals and oils prices.

Soy prices have fallen on forecasts of near-record South American production, bringing down other grains prices.

For 2012 as a whole, the index averaged 212, down seven per cent compared to 2011, but still at historically high levels.

"Prices are high and will remain high in 2013-14," FAO senior economist Abdolreza Abbassian said in a telephone interview.

"The fact that stocks remain low and the possibility of hopefully a better economic situation in 2013-14 that should encourage consumption are issues the market will get some price support from," he said.

FAO said in December it expected world cereal stocks to be about 495 million tonnes at end-2013, down five per cent from their opening level.

Nevertheless, Abbassian said, better international co-ordination was helping prevent countries from using export bans, which was creating a calmer situation compared to 2008, when unexpected national controls worsened the food crisis.

Good supply prospects for corn and soybeans in the southern hemisphere would help offset tightness in the northern hemisphere, reducing the risk of supply shocks, he said.

But the situation for wheat remained more cautious, he said, due to concerns over high usage and a lack of high quality wheat in the market.

FAO’s index is below a peak of 238 points hit in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa.

In the summer of 2012 it reached levels close to those seen in 2008 when riots, some deadly, broke out in several poor countries.

— Catherine Hornby reports on Italian economic issues and politics for Reuters from Rome.

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In a report on food insecurity, the UN agencies said 868 million people were hungry in 2010-12, or about 12.5 per cent of the world’s population, down more sharply than previously estimated from about one billion, or 18.6 per cent in 1990-92.

The new figures, based on a revised calculation method and more up-to-date data, are lower than the last estimates for recent years that pegged the number of hungry people at 925 million in 2010 and 1.02 billion in 2009.

“That is better news than we have had in the past, but it still means that one person in every eight goes hungry. That is unacceptable, especially when we live in a world of plenty,” said José Graziano da Silva, director general of the Food and Agriculture Organization (FAO).

“Most of the progress in hunger reduction was made until 2006, as food price levels continued to decline. With the rise in food prices and the economic crisis that followed, there have been many fewer advances,” he warned.

Food prices have risen over the past few months, fuelled by drought in the United States, Russia and other major grain exporters, and FAO expects prices to remain close to levels reached during the 2008 food crisis.

But Graziano da Silva said the world can still achieve the Millennium Development Goal to halve the prevalence of undernourishment in the developing world by 2015.

The goal is one of a series of targets adopted by world leaders at the United Nations in 2000 to slash poverty, hunger and disease in poor countries by 2015.

Economic recovery, especially in the agriculture sector, will be crucial for sustained hunger reduction, according to the report by FAO, the World Food Program (WFP) and the International Fund for Agricultural Development (IFAD).

“Agricultural growth involving smallholders, especially women, will be most effective in reducing extreme poverty and hunger when it generates employment for the poor,” the agencies said.

They said factors holding up progress include growing biofuel demand, financial speculation in food commodity markets and inefficiencies in food supply and distribution which lead to almost a third of total production being wasted.

“Biggest scandal”

Luca Chinotti from aid agency Oxfam said lack of political action to tackle high food prices, gender inequality, land grabs and climate change risked reversing past gains in the fight against hunger.

“The fact that… more than the population of the U.S., Europe and Canada are hungry in a world which produces enough for everyone to eat is the biggest scandal of our time,” he said.

The vast majority of people suffering hunger, 852 million, live in developing countries, where the prevalence of undernourishment is estimated at 14.9 per cent, the report found.

In the past two decades hunger has fallen by nearly 30 per cent in Asia and the Pacific, due to socio-economic progress. Africa was the only region where the number of hungry grew over the period, to 239 million in 2010-12 from 175 million in 1990-92.

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In their latest report on food insecurity, the UN agencies estimated that 868 million people were suffering hunger in 2010-2012, or about 12.5 per cent of the world’s population, down more sharply than previously estimated from about one billion, or 18.6 per cent in 1990-92.

The new figures are lower than the last estimates for recent years that pegged the number of hungry people at 925 million in 2010 and 1.02 billion in 2009.

"That is better news than we have had in the past, but it still means that one person in every eight goes hungry. That is unacceptable, especially when we live in a world of plenty," said Jose Graziano da Silva, director general of the Food and Agriculture Organization (FAO).

"Most of the progress in hunger reduction was made until 2006, as food price levels continued to decline. With the rise in food prices and the economic crisis that followed, there have been many fewer advances," he warned.

Food prices have been on an upward trend over the past few months, fuelled by drought in the United States, Russia and other major exporters, and FAO expects prices to remain close to levels reached during the 2008 food crisis.

But Graziano da Silva said the world can still achieve the Millennium Development Goal to halve the prevalence of undernourishment in the developing world by 2015 if efforts are boosted to reverse the slowdown in progress.

The goal is one of a series of targets adopted by world leaders at the United Nations in 2000 to slash poverty, hunger and disease in poor countries by 2015

Broad-based economic recovery, especially in the agriculture sector, will be crucial for sustained hunger reduction, according to the report by FAO, the World Food Programme (WFP) and the International Fund for Agricultural Development (IFAD).

Employment for the poor

"Agricultural growth involving smallholders, especially women, will be most effective in reducing extreme poverty and hunger when it generates employment for the poor," the agencies said.

They said factors holding up progress include growing biofuel demand, financial speculation in food commodity markets and inefficiencies in food supply and distribution which lead to almost a third of total production being wasted.

FAO, WFP and IFAD define undernourishment, or hunger, in the State of Food Insecurity in the World 2012 (SOFI) report as "food intake that is insufficient to meet dietary energy requirements continuously".

The vast majority of people suffering hunger, 852 million, live in developing countries, where the prevalence of undernourishment is estimated at 14.9 per cent, the report found.

In the past two decades hunger fell nearly 30 per cent in Asia and the Pacific, thanks to socio-economic progress. Africa was the only region where the number of hungry grew over the period, to 239 million in 2010-12 from 175 million in 1990-92.

Analysts from FAO and WFP said the new figures followed adjustments to population size and human height estimates.

They also took into account a more detailed assessment of food availability and the amount of food wasted along the supply chain.

The new numbers suggest the impact of the 2008 economic crisis and the spike in international food prices had a less pronounced impact in many developing countries than was feared, the agencies said, with many governments succeeding in cushioning the shocks and protecting the most vulnerable.

— Catherine Hornby reports for Reuters from Rome.

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The worst drought in more than 50 years in the United States sent corn and soybean prices to record highs over the summer, and, coupled with drought in Russia and other Black Sea exporting countries, raised fears of a renewed crisis.

Grains prices have retreated in recent weeks due to rapid harvest progress and concerns about weak demand in a slowing global economy.

But the Food and Agriculture Organization’s (FAO) price index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, rose 1.4 per cent to an average of 216 points in September after remaining stable at 213 points in August.

The rise reflected mainly higher dairy and meat prices, with more contained increases for cereals, it said.

"Prices are remaining high… prices are sustained, it’s highly unlikely we will see a normalization of prices anytime soon," FAO senior economist Abdolreza Abbassian told Reuters in a telephone interview.

He added, however, it was not clear whether the small increase in September meant prices were now on an upward trend, but he expected volatility in markets could intensify in coming months.

Parmjit Singh, head of the food and drink sector at law firm Eversheds, said higher prices would place further pressure on squeezed international food supply chains.

"Manufacturers and producers will naturally want to pass on increased costs to their clients but they will meet with stiff resistance from retailers who are reluctant to increase checkout prices for increasingly value-conscious customers," Singh said.

FAO’s index is below a peak of 238 points hit in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa, but current levels are very close to those seen in 2008 which sparked riots in poor countries.

"Markets are functioning"

The Rome-based agency said it had cut its 2012 world cereals output forecast by 0.4 per cent to 2.286 billion tonnes from a previous estimate of 2.295 billion tonnes, mainly due to a smaller maize crop in central and southeastern parts of Europe, where yields have been hit by prolonged dry conditions.

It also decreased its forecast for world cereal stocks at the end of the 2013 season to 499 million tonnes, down four million tonnes from its projection last month.

Despite the rise in food prices, the United States Mission to the UN Agencies in Rome said on Thursday it had agreed with other countries that a meeting of the emergency Rapid Response Forum, to discuss food prices under the G20 agriculture body AMIS, was not necessary.

"Agricultural commodity markets are functioning," the mission said.

Abbassian said a ministerial meeting on the food market situation was still planned for Oct 16.

Aid agency Oxfam called on governments to tackle the root causes of food price volatility at the meeting.

"They need to boost food reserves and strengthen social protection programmes for populations that are at risk of hunger," Oxfam spokesman Colin Roche said in a statement.

"We cannot afford to sleepwalk into the next food crisis."

French President Francois Hollande has launched a global campaign to win support for strategic stocks of agricultural commodities, but EU development commissioner Andris Piebalgs said this week that was not the best way to tame food prices, advising a focus on agricultural investment to boost production.

— Catherine Hornby reports for Reuters from Rome.

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The UN Food and Agriculture Organization’s (FAO) director-general Jose Graziano da Silva called for international action to calm markets but also said the August price index, which remained unchanged from July, provided some cause for optimism.

Earlier on Thursday, Russian deputy agriculture minister Ilya Shestakov said G20 countries would hold a meeting on the grain market next month.

The worst U.S. drought in more than half a century and poor crops from the Black Sea bread basket have sent grain prices to record peaks, raising alarm over a potential repeat of the crisis in 2008 that sparked riots around the world.

The FAO food price index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 213 points in August — unchanged from July, when prices surged six per cent after three months of falls.

Prices of cereals, oils and fats were little changed in August, while sugar prices fell sharply, compensating for rising meat and dairy prices, FAO said.

The index is below a peak of 238 points hit in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa, but it is still close to levels during the food price crisis in 2008.

"Although we should remain vigilant, current prices do not justify talk of a world food crisis. But the international community can and should move to calm markets further," Graziano da Silva said in a statement.

"We are reassured that the drought problems in the U.S. will not pull us into a similar situation that we had in 2008," he said.

FAO’s director of trade and markets, David Hallam, said there were still upside risks for food prices, such as the potential for speculative capital to return to markets. A lot would also depend on how plantings develop, he said.

"The market is very vulnerable to any supply side shocks… there is a risk of more price increases but at the moment there is no evidence to suggest that is an inevitability," he told a news conference.

Waiting on USDA

The FAO said this week that swift international action could still prevent a catastrophe from developing. It has urged countries to review their biofuel mandates and also warned against panic buying and restrictions on exports.

Hallam said G20 countries should keep working to boost market transparency through information sharing, and should also look at ways of reducing the impacts of speculation. He said strategic reserves could be useful at the national level for managing risks of price volatility.

The Rome-based agency said it had cut its 2012 world cereals output forecast by 4 percent to 2.295 billion tonnes from a previous estimate of 2.396 billion tonnes due to the worsening prospects caused by the severe U.S. drought.

The agency said global cereal output was insufficient to fully cover the 2012-13 marketing season, indicating a larger-than-expected drawdown of stocks.

It added that world cereal stocks would fall sharply, forecasting 2013 ending stocks at 503 million tonnes, down six per cent from its July forecast.

A mix of high oil prices, growing use of biofuels, speculation on commodity markets and export restrictions pushed up food prices in 2007/08, sparking unrest in countries including Egypt, Cameroon and Haiti.

G20 nations held a conference call last week to discuss the global food price surge but had said they would wait for a mid-September crop report from the U.S. Department of Agriculture before deciding whether to take joint action, France’s farm minister said last week.

— Catherine Hornby reports for Reuters from Rome.

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Global alarm over the potential for a food crisis of the kind seen in 2007-08 has escalated as drought in the U.S. Midwest has sent grain prices to record highs, fuelling a six per cent surge in the UN Food and Agriculture Organization’s July food price index.

The FAO’s director-general Jose Graziano Da Silva wrote in the Financial Times on Friday that competition for a U.S. corn crop that has been ravaged by the worst drought in 56 years was only going to intensify.

"Much of the reduced crop will be claimed by biofuel production in line with U.S. federal mandates, leaving even less for food and feed markets," he wrote in an editorial.

"An immediate, temporary suspension of that mandate would give some respite to the market and allow more of the crop to be channelled towards food and feed uses," he said in the high-profile yet indirect message to Washington.

Under the five-year-old Renewable Fuels Standard (RFS), U.S. fuel companies are required to ensure that nine per cent of their gasoline pools are made up of ethanol this year, which means converting some 40 per cent of the corn crop into the biofuel.

The U.S. Department of Agriculture on Friday slashed its estimates for the size of the corn crop by more than expected, sending corn futures prices, already up 60 per cent since June, to a fresh all-time high.

A mix of high oil prices, growing use of biofuels, speculation on commodity markets and export restrictions pushed up prices of food in 2007-08, sparking violent protests in countries including Egypt, Cameroon and Haiti.

David Hallam, director of the FAO’s trade and markets division, told Reuters that biofuels policies needed to become more flexible to help prevent new food crises developing.

"One idea is you have some kind of price trigger so that as maize prices rise then the mandates adjust," he said, adding that the FAO wanted to reopen debate on biofuels policies.

Waiver

The FAO has joined a growing and diverse chorus calling for an unprecedented waiver or suspension of the RFS.

This week, 25 U.S. senators urged the Environmental Protection Agency (EPA) to adjust the mandate, while the chief executive of grains giant Cargill said the free market should dictate biofuels use.

Livestock producers, who are forced to bid against ethanol producers to secure costlier grain for feed, were first to ask for relief.

However, the EPA must first receive an official petition for a waiver, which can only come from a fuel blender or a state governor, according to the legislation.

To that end, the governors of poultry-producing states Maryland and Delaware on Friday wrote the EPA, requesting relief from corn prices through a whole or partial waiver of the ethanol mandate.

U.S. ethanol production credit prices dropped six per cent this week after trebling since June, with traders taking profits on the fear, though remote, that Washington might relax the mandate.

FAO officials have warned of the potential for a food crisis to develop if countries resort to the kind of export restraints and panic buying that aggravated price surges in 2007-08.

"It is vitally important that any unilateral policy reactions from countries, whether importers or exporters, do not further destabilize the situation," Graziano Da Silva wrote in the newspaper.

Charity Oxfam has warned that rising food prices could drag millions of people around the world into conditions of hunger and malnourishment, in addition to nearly one billion who are already too poor to feed themselves.

While the RFS program faces growing criticism, it also has strong support from Farm Belt politicians in an election year and has been a core part of President Barack Obama’s energy plan. Some say suspending it would do little to relax demand.

Waiving the mandate could have several unintended effects, such as dampening investment in cellulosic and other advanced biofuels that could cut dependence on food crops for making fuel, or damage the market for dried distillers’ grains, an ethanol byproduct sold as a livestock feed.

In 2008, Texas Governor Rick Perry petitioned the EPA to cut the mandate in half for that year. The EPA refused, but in doing so it made clear that future petitions would have to prove that the RFS itself was causing severe economic harm.

— Catherine Hornby is Reuters’ correspondent in Rome.

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Prices have eased from record highs hit in February last year and have stabilized as farmers boost output, but burgeoning demand for food, feed and fuel will keep prices firmly underpinned in coming years, the two bodies said.

"The trend is now on the upside," OECD Secretary General Angel Gurria told a news conference in Rome. "That’s due to scarcity of resources and land, more people on the planet and changing consumption patterns."

In nominal terms, prices are set to rise over the next 10 years. Prices adjusted for inflation will remain flat or decline from current levels but are projected to average 10 to 30 per cent above those of the previous decade, the report found.

High food prices at the start of last year helped fuel the Arab Spring uprisings in the Middle East and North Africa, but prices receded in the second half of 2011.

Food prices measured by the UN’s Food and Agriculture Organization (FAO) have fallen in the past three months but are expected to rebound in July following relentless dry weather, which has affected U.S. corn and soybean crops.

Gurria said in an interview that price spikes in soybean and corn markets over recent weeks would quickly lead to inflationary pressures, especially in poorer countries where food takes up a larger proportion of household spending.

The joint OECD-FAO Agricultural Outlook 2012-2021 report found that the risk of price spikes would increase in coming years.

"We expect prices will remain volatile as demand grows but stock levels fail to rise as much as in the past – that way any shortfalls will tend to have a higher impact on markets," Merritt Cluff, FAO senior economist, said in an interview.

Weather-related yield variability and slower growth in production will also encourage volatility, FAO and OECD said.

Agricultural output growth is expected to slow to 1.7 per cent per year over the next decade from more than two per cent over the past several decades.

But the report warned that agricultural production needs to increase by 60 per cent over the next 40 years to meet the rising demand for food.

Urbanization

Cluff said major sectors of growth in the next 10 years would be the livestock feed and vegetable oils markets as more people in developing countries consume meat and processed foods such as cookies and chocolate bars.

The trend will boost demand for oilseeds, while demand for wheat and other cereals is expected to be weaker.

"Higher income growth and urbanisation in emerging economies increases the tendency to buy value-added food products and get protein from meat, poultry and processed foods," he said. "Protein from cereals will not see such demand in future."

Prices for oilseeds are projected to increase in nominal terms by 9 percent over the decade, more than the rise anticipated for coarse grains and wheat, the report said.

High crude oil prices and biofuel mandates will also underpin oilseeds and vegetable oil prices. About 16 per cent of global vegetable oil production should be used to produce biodiesel by 2021.

Meanwhile, ethanol production is set to absorb 14 per cent of global coarse grain production and 34 per cent of sugarcane production by that date, the report said.

Gurria said biofuel policies would have a big impact on volatility levels of food commodity markets.

"Price spikes will have a lot to do with how much food is burnt for biofuel. That is going to have a serious bearing on the price of food going forward," he said.

Sugar prices are seen staying at high levels, underpinned by low stocks, and further bouts of price surges are possible in response to unforeseen production shocks, the report said.

Meat prices are also set to remain on a high plateau during the next decade under persistently high production costs and more stringent food safety, environmental and animal welfare regulations.

FAO and OECD said farms should aim to boost productivity in a sustainable way to help contain food price rises and reduce the insecurity of global food supplies.

It said this could be achieved through more efficient use of irrigated water, fertilisers and crop protection products, investing in agricultural research and innovation and introducing policies that encourage these changes.

— Catherine Hornby is a Reuters correspondent based in Rome.

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Prices of some foods may ease slightly in 2012 due to a slowing global economy but are unlikely to drop drastically from the high levels reached last year, the new director-general of the U.N.’s Food and Agriculture Organization said on Tuesday.

Jose Graziano da Silva, the Brazilian who replaced Senegal’s Jacques Diouf at the helm of the FAO at the start of 2012, said volatility in food markets was likely to continue and that more people would be at risk of hunger due to economic instability.

"Prices will not be going up as in the last two to three years but will also not drop down. There may be some reductions but not so drastic, in the short term," Graziano da Silva told a news conference in Rome.

"Volatility will remain, that is clear," he said.

Global food prices measured by the FAO hit a peak last February but have been falling since June as crops have improved and concerns about global economic turmoil have reined in demand growth.

High food prices have helped fuel inflation and contributed to the civil unrest which created the so-called Arab Spring last year.

Graziano da Silva said he did not expect the economic slowdown in Europe to impact funding for FAO projects, because the amount countries donated was such a small proportion of gross domestic product that they were unlikely to cut it.

But he said the slowdown was likely to increase the number of people at risk of hunger in the world, which the organisation estimated at 925 million people in 2010.

"We will have more work to do, with more people hungry, more people unemployed, and we will need new ways to assist them," he said, as he began a term of three and a half years.

Focus on Africa

The 62-year-old agronomist, who is the first Latin American at the helm of the U.N. agency, said he would focus efforts on poor countries that are most in need of outside help and that his priority would be Africa, particularly northern Africa.

He plans a visit to the Horn of Africa early this year, where drought and famine are affecting millions of people.

The FAO is the largest U.N. agency with an annual budget of some US$1 billion and 3,600 workers. It is fighting food crises across the world that have been aggravated by price volatility.

Graziano da Silva, the former head of the FAO in Latin America and the Caribbean and a former minister for food security in Brazil, will need to bridge a divide between donor countries and developing countries to foster consensus and avoid paralysis in the organization.

He plans to cut bureaucracy and reduce perks for top management and he also wants to decentralize operations and give more authority to local outposts, he said.

The FAO adopted reforms after an assessment funded by its members in 2007, which said it risked "terminal decline" due to its weak governance and lack of transparency and accountability.

But last year Britain threatened to pull out of the organization unless it improved its performance, and some donors such as the United States have initiated agricultural development projects of their own.

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AUN intergovernmental body on food security has failed to adopt international guidelines on land governance, delaying efforts to regulate so-called land grabbing as investors race to snap up agricultural land.

A voluntary code of conduct has been in the works since 2008, driven by concerns that countries such as China and Gulf Arab states are buying swathes of land in Africa and Asia to secure their own food supplies, often at the expense of local people.

Olivier De Schutter, the UN s special rapporteur on the right to food, said three-quarters of the guidelines had been agreed upon in a meeting last week but that rules on large-scale investment in farmland remained a sticking point.

The negotiations have not been finalized, but are on a good track, De Schutter said in an interview Oct. 17. But it s much better to have extremely detailed and ambitious guidelines even if it takes time.

He said members of the UN Committee on Food Security (CFS) would meet again at the start of 2012, when they hoped to reach a final draft agreement, and that the guidelines would probably be ratified in about a year from now. They had originally aimed to agree on a final draft last week.

The guidelines will form the basis for the first of seven principles for responsible agricultural investment, drawn up by the World Bank and other U.N. agencies but yet to be adopted internationally.

The first of those principles will relate to recognition and respect for existing land rights. Further principles say investment should not jeopardize food security and that all those materially affected should be consulted.

A spike in food prices to record levels in 2007-08 sparked a wave of land deals as food-importing countries and major agricultural businesses sought to increase their supplies and protect themselves from price volatility.

Investors are now scrambling to snap up land assets before the sector becomes more regulated, as uncertainty in financial markets makes land an increasingly attractive investment, De Schutter said.

Not just the stock markets but also the bond markets are less and less reliable and predictable, and less promising for investors, so they are more interested than ever in land, he said.

There is now a race between investors coming into countries and the international community wanting to regulate this process in order to avoid it having fearsome consequences, he said.

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