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FAO Says Grain Prices Could Rebound

Stocks of agricultural commodities remain low and prices could start to rise again if there is an earlier-than-expected economic rebound, Alexander Sarris of the United Nations Food and Agriculture Organization said March 12.

“Stocks are not very big now. They still have to be built up… If all of a sudden demand turns out to be higher, we will hit a constraint and prices will go up,” he told Reuters on the sidelines of the Agra Europe 2009 outlook conference.

Sarris, director of the FAO’s Trade and Markets division, said commodity markets were likely to be volatile with producers faced with an uncertain future.

“Everyone (producers) has to make decision about what is going to happen (to demand) next year but who knows. Uncertainty is making everyone take a shot in the dark,” he said.

Sarris said producers should be able to provide sufficient supplies to cope with an anticipated pickup in demand, adding if stocks had been built up by the time demand rebounded there should not be a sharp increase in prices.

Prices for agricultural commodities soared in early 2007, boosted partly by very low stocks, but have fallen back sharply in the last few months as the global economic crisis deepened.

Sarris said biofuels demand was likely to continue to be an important factor in agricultural commodity prices for some time.

Production in some key producing areas, particularly the United States and the European Union, has, however, relied heavily on supportive government policies.

Sarris said the economic crisis raised some doubts about future government policies on biofuels.

“Government budgets are being crunched and they may spend now on more immediate social protection rather than biofuels. This has yet to be seen,” he said.

But he said it may be hard for governments to retract supportive policies as investment decisions had now been made based on them.

Sarris said production of agricultural commodities in Africa had stagnated due partly to a lack of credit.

“In Africa, the availability of credit is very low,” he said, adding institutional problems were hampering expansion in the continent.

He said new ways needed to be found so African farmers could buy inputs and take advantage of technological advances.

“Quite a lot of technology has not been applied in Africa… We have been neglecting this issue,” Sarris said.

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