Rising prices for a wide range of agricultural commodities are stirring fears of global food-driven inflation, but there should be no repeat of the crisis seen in 2007-08 unless governments start to panic.
Analysts cite much higher global stocks of staples such as wheat and a more challenging economic environment as factors which should temper any prolonged rise in food prices.
Some governments have already begun to respond. Egypt, the world’s biggest wheat importer, quickly refilled its order book after drought-hit Russia banned exports in a bid to avoid shortages and a rerun of violent protests seen in 2008.
Analysts say, however, governments need to avoid inflaming the situation. Export bans and stockpiling, can help keep a lid on domestic prices but also risk global market turbulence.
“We could see behaviour by governments which would put us in a more difficult situation,” said Karen Ward, senior global Economist at HSBC Bank.
Riots in Mozambique, in which 13 people were killed, showed the potential dangers for governments if domestic prices are not kept in check. A 30 per cent rise in the price of bread – linked to soaring global wheat prices – had to be quickly reversed.
Surging agricultural commodity prices in 2007-08 led to a sharp rise in the cost of basic food staples, sparking riots in several countries. In some cases, governments responded by banning exports in a bid to stem food price inflation.
It took a global economic downturn to end the crisis.
Wheat futures in Chicago raced to a two-year high of $8.41 a bushel in early August after Russia, suffering its worst drought in more than a century, banned wheat and flour exports.
The rally ran out of steam, however, well short of the peak of $13.34-1/2 a bushel set in February 2008, partly due to abundant global stocks.
The International Grains Council estimates global wheat stocks at the end of the 2009- 10 season (July/June) were 197 million tonnes, up more than 60 per cent from two years earlier, following the two largest crops in history in 2008 and 2009.
“The situation is totally different from 2007 as, following the very good harvests in 2008 and 2009, there are significant global and European stocks,” Roger Waite, agriculture spokesman for the European Commission, said.
Prices for another food staple, rice, have been climbing after the worst floods in history damaged more than 30 per cent of the rice crop in Pakistan.
They remain, however, far below 2008 peaks.
The benchmark 100 per cent B grade Thai white rice prices are trading around $490 per tonne, less than half the record $1,050 in May 2008 when fears of global shortages drove the market higher, stoking food inflation.
Traders said prices were not expected to climb much further even if Pakistan banned rice exports.
“Pakistan is still going to export rice but there was some talk that they may be looking at imposing restrictions,” said a trading manager with an international trading company in Singapore.
“Even if they do have a ban on exports, prices are not going to move up anywhere close to 2008 level. The price might go up to around $550 a tonne if there is no rice coming out of Pakistan.”
The U. S. Agriculture Department said last month that U. S. food prices in 2010 could rise at their slowest pace since 1992 despite the recent surge in raw commodities prices.
Some private analysts, however, said the forecast may be too conservative, with meat prices particularly firm.
The average U. S. wholesale pork price hit a record high last month amid strong exports and six-year-low pork stocks. Beef prices are historically high amid the smallest July 1 cattle herd on record.
“The meat supply is smaller and demand is coming from both exports and a lack of imports and the U. S. consumer seems to be coming back, demanding more meat,” said Len Steiner, a principal at the food consulting firm Steiner Consulting.
“As this economy turns around all of a sudden we could see the meat prices go flying up,” he added.
ON THE BREADLINE:Residents queue for bread in the streets of Mozambique’s capital, Maputo, September 3, 2010 after two days of rioting, triggered by a sharp hike in bread prices left seven dead, 288 injured and millions of dollars of damage.