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Food Prices To Remain High

“If we get a climate shock in one of the major producing

countries, then we are back to Square 1.”

– JACQUES DIOUF

Food prices are likely to rise again on resumed demand for agricultural commodities for food and energy and higher input costs due to rising oil prices, the United Nations’ food agency said Feb. 18.

Food prices fell from 2008 highs due to the global economic downturn, but remained above pre-peak levels and were set to stay high at least in the medium term, the Food and Agriculture Organization said, confirming earlier forecasts.

“We expect prices in the medium term – over the next 10 years – to remain firm but not at crisis levels,” said Abdolreza Abbassian of the FAO’s Trade and Markets Division.

But FAO director general Jacques Diouf warned that most of the factors that led to the food price surge in 2008 were still present – even though one key difference now was that cereals stocks had returned to normal levels.

“If we get a climate shock in one of the major producing countries, then we are back to Square 1,” Diouf said, presenting the FAO report on the State of Food and Agriculture.

Renewed income growth in developing countries would power demand recovery and drive commodities and food prices higher, threatening food security, especially for poor people, FAO said.

Growing biofuels demand spurred by mandatory targets and incentives in some countries “irrespective of market conditions” would boost prices of maize and vegetable oils used as feedstock for biodiesel and bioethanol and, in turn, of food commodities.

Higher oil prices would translate into increased production costs for farmers as input prices for chemicals and fertilizers as well as higher transport costs would rise.

The FAO Food Price Index, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, stood at a 15-month high in January and December but about 20 per cent below the peak in June 2008.

AGRICULTURAL PRODUCTIVITY DECLINES

FAO said agricultural output is expected to rise 12 per cent in industrialized countries in the next 10 years compared with 2000, while Latin America, Asia and the former Soviet states would grow by 75, 53 and 58 per cent respectively.

As agricultural productivity growth declines in many countries, boosting output would require higher costs per unit, the FAO said.

Protectionist measures, including export curbs introduced by some countries during the latest food crisis, would destabilize markets and drive international food prices higher and make them more volatile, the agency warned.

Stock building by countries, companies and individual producers may trigger commodity price spikes, even though in the longer term higher stock levels would help cut prices, it said.

As the global economic crisis pushed the number of hungry people in the world above one billion last year, governments and international organizations should boost efforts to create safety nets and social programs to protect the poor and hungry, FAO said.

But increased investments are needed to boost agricultural output to ensure food security, it said.

More than six months after the Group of Eight pledged to spend $20 billion over the next three years in farm aid to poor countries “the money has not materialized,” Diouf said.

FAO says the world needed to invest $83 billion a year in agriculture in the developing world and raise overall output by 70 per cent over the next 40 years to feed over nine billion people in 2050.

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