Social

Home page

Social

UN warns rise in prices could trigger food crisis

10 August 2012 10:52 (UTC +04:00)

Ahead of a critical government report on Friday on the state of the U.S. corn and soybean crops, which have been decimated by the worst drought in over five decades, the United Nation’s food agency warned against the kind of export bans, tariffs and buying binges that worsened the price surge four years ago.

"There is potential for a situation to develop like we had back in 2007/08," the Food and Agriculture Organisation’s senior economist and grain analyst Abdolreza Abbassian told Reuters.

"There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn’t happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible."

Adding a further risk of strain on global food supplies, Japan’s official weather bureau said on Friday its climate monitoring data and models indicated the El Nino phenomenon had already emerged and was likely to last until winter.

So far, most governments have refrained from trade intervention. Russia’s deputy prime minister said this week he saw no grounds to ban wheat exports, as the country did in 2010, but he did not rule out protective export tariffs after the end of the 2012 calendar year.

Abundant rice supplies, sluggish economic growth and relatively lower oil prices may also help temper the rally in prices, Abbassian added.

But signs of unusually large early buying and extra stockpiling are emerging. U.S. corn export sales over the past week jumped to the second-highest in 10 months, if the sales figure includes a near-record one-time purchase by private importers in Mexico, the world’s No. 2 importer.

A mix of high oil prices, growing use of biofuels, bad weather, soaring grain futures markets and restrictive export policies pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti.

Unlike that demand-driven spike, however, the current rally in grains has been fuelled largely by a dire drought covering the U.S. Midwest. After slashing its corn crop estimate by 12 percent last month, the U.S. Department of Agriculture is expected to report a further 15 percent decline in a report on Friday, providing the most authoritative view yet of the weather damage to the world’s biggest grower.

Benchmark Chicago corn prices for December delivery, already up more than 60 percent since mid-June, reached a new record of nearly $8.30 per bushel. Soybeans jumped 3 percent.