RISING COSTS FUEL INFLATION FEARS / THE FINANCIAL TIMES ( HIGHLY RECOMMENDED READING )

Rising costs fuel food inflation fears

By Jack Farchy in London

Published: Last updated: June 3 2010 14:38

The rising cost of meat, dairy products and vegetable oils will increase the world’s food import bill by 11.5 per cent in 2010, according to the United Nations, further stoking fears of rising food inflation in emerging countries.

Food costs make up a significant part of the price of consumer goods, and the increase is likely to lead to higher inflation at a time when many emerging economies are battling rising inflation.

Chinese consumer price inflation rose to 2.8 per cent in April, with food prices rising 5.9 per cent year-on-year – one factor pushing the Chinese authorities to take measures to cool the growth of their economy.

In its forecast about this year’s food import bill, the UN’s Food and Agriculture Organisation said on Thursday that the cost of imported foods would hit $921bn, its highest level after a record of $1,015bn in 2008, and well above levels before the food crisis of $350bn-$450bn a year.

The high figure is the result of increases in the cost of commodities such as milk, beef and sugar as well as a growing trend towards the consumption of higher-value foods in emerging economies.

Abdolreza Abbassian, an expert at the FAO in Rome, said the forecast rise in food spending could be seen as a sign of affluence. “It means that developing countries are spending money on not just wheat and rice,” he said.

The forecast increase in the cost of foodstuffs comes in spite of falling prices for cereals, the staples that are used both for human food and as feed for animals.
The price of wheat has fallen 33 per cent from a year ago, soyabeans have dropped 23 per cent and corn (maize) prices are 22 per cent lower. Rice is down 21 per cent.

The FAO forecast a bumper harvest in the 2010-11 growing season, with global cereal production hitting 2,279.5m tonnes, up 1.2 per cent from last year.

“Cereal markets are heading towards another comfortable season, with world production in 2010 likely to at least match the record achieved in 2008 and global inventories increasing for the third consecutive season,” the FAO said in its twice-yearly report on food prices.

“The 2008-2009 food prices boom spurred plantings and production of many crops, which has resulted in a recovery in inventories and boosting stocks-to-use ratios, a tendency likely to prevail also in 2010/11,” the agency added.

The rise in import costs will be driven instead by prices of dairy products, meat and oilseeds, the FAO said. The price of dairy products increased 45 per cent in the first five months of the year, while beef and pork prices have also hit their highest levels in years.

Another factor contributing to the higher food bill is the rising cost of shipping, which on average is up about 75 per cent year-on-year.

“Rising freight costs constitutes another factor behind higher bills in 2010, putting additional pressure on countries’ ability to cover their import costs,” the FAO said.

Copyright The Financial Times Limited 2010.