World food prices stabilized in August at levels close to those reached in the food crisis of 2008, and global grain stocks are likely to shrink this year as cereal crop output falls short of what is needed, the United Nations food agency said on Thursday.
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.