RISE IN FOOD COMMODITY PRICES TO EASE / THE FINANCIAL TIMES

Rise in food commodity prices to ease


By Javier Blas, Commodities Correspondent

Published: June 17 2009 11:59



Agricultural commodities prices will rise 10-30 per cent over the next 10 years compared with their average of 1997-2006, less than previously feared because of lower economic growth and oil prices, two leading organisations said on Tuesday.

“Continued weakness in the general economy will further dampen commodity prices over the next two to three years,” the United Nations’ Food and Agriculture Organisation and the Organisation for Economic Co-operation and Development said. But they added that prices “should then strengthen with economic recovery”.

“We are forecasting lower prices than [we forecast] last year,” Merritt Cluff, a senior economist at the FAO and one of the report’s main authors, told the Financial Times. Last year’s report saw prices rising by an average of 40 per cent over the next decade.

Private sector analysts and agriculture industry executives are less relaxed, however.In addition, wholesale agricultural commodities prices have already risen to their highest level in eight months, up about 50 per cent from December’s lows.

The FAO and OECD acknowledged risks ahead, saying that “further episodes of strong price fluctuations cannot be ruled out nor can future short-lived crises” and added that agricultural commodities prices will “remain above historical averages”.

But the overall tone of their Agricultural Outlook 2009-18 report painted a more positive picture than last year, when at the peak of the food crisis they warned of sharply rising prices over the coming 10 years and a “structural upward shift” in food costs.

This time, however, the two organisations said that there was “lessening evidence” to suspect that the world has “undergone any structural upward shift” in food costs.

Most executives from the food industry and analysts believe, however, that agricultural commodities prices have experienced an structural upward shift in costs, which is likely to be exacerbated by water scarcity and climate change.

The report states, however, that agricultural commodities prices – even when taking into account inflation over the next 10 years – will not return to their low levels of the last decade, suggesting that food costs have, indeed, moved to a higher plateau.

Among individual food commodities, it sees higher prices for vegetable oil and corn, followed by rice, sugar and wheat. Meat and dairy product prices will remain little changed when compared with the levels of 1997-2006.

The organisations said that the agricultural sector was expected to be better shielded from the global economic crisis than others because of ”the recent period of relatively high incomes” and the fact that a drop in personal incomes has little effect on food demand.

Agriculture, long a neglected sector in terms of policy discussions, is now being examined more closely by policymakers after the 2007-08 food crisis, which saw record prices for staples such as wheat and rice spark food riots from Haiti and Bangladesh to Egypt and Senegal.

The FAO and OECD warned that even if food prices rose by less than feared over the next 10 years, global food security would remain a problem. “High food costs, combined with the global credit crunch, falling international trade and investment flows, lower remittances and budgetary pressures on development aid, are reversing the progress made in combating global poverty,” they said.

Jacques Diouf, head of the Rome-based FAO, told the Financial Times earlier this year that the combination of high food prices and the economic crisis would boost the number of chronically hungry people above 1bn for the first time this year, up from 963m in 2008.

Before the food crisis started in 2007, there were fewer than 850m chronically hungry people in the world, a level that had remained roughly constant since the early 1990s thanks to the global fight against poverty and increased economic growth in countries such as China and India.

Copyright The Financial Times Limited 2009