FT: Rising food prices to hit consumption

Intersting article about the impact of high commodity prices.
As always, click on read more to see the whole article

Rising food prices to hit consumption
ByJavier Blas, Commodities Correspondent, in London
Copyright The Financial Times Limited 2007

Published: November 7 2007 11:00 | Last updated: November 7 2007 11:00

Poor developing countries will be forced to cut food consumption and risk an increase in malnutrition after an “alarming” increase in their agricultural commodities bills, the United Nations’ Food and Agriculture Organisation warned on Wednesday.


In its biannual Food Outlook report the FAO ­predicted that food prices, particularly cereals, would remain high in 2008 having hit record levels this year.

“Given the firmness of food prices in the international markets, the situation could deteriorate further in the coming months, leading to a reduction in imports and consumption in many low-income food-deficit countries,” the report said.

Ali Arslan Gurkan, chief of commodity markets and ­policy analysis at the FAO in Rome, said that sub­Saharan countries were most at risk and added that high food prices meant it was increasingly difficult to meet the UN goals of hunger reduction.

“We are lagging well behind our targets [of hunger reduction] and we are not likely to meet them,” Mr Gurkan said. “The outlook for food and, at the same time, crude-oil importing countries is bleak.”

The world’s food import bill will rise in 2007 to $745bn (€508bn, £354bn), up 21 per cent from last year. The cost for developing countries will increase by 25.5 per cent, to almost $233bn.

The annual food expenditure of the most vulnerable countries has more than doubled since 2000, according to FAO estimates.

Mr Gurkan said that, as a result, some countries were already reducing their food imports. Prices were rising because of strong demand from developing countries; a rising global population; more frequent floods and droughts caused by climate change; and the biofuel industry’s appetite for grains.

“Soaring grain prices are to blame, especially for wheat, but also freight costs, which have doubled since last year, putting additional pressure on countries’ ability to cover their import expenditures,” the report said.

The warning on sustained high food prices comes after Russia last month imposed price controls on food and other countries were forced to increase their food subsidies or scrap their food import tariffs.

The UN body has warned that high food prices could trigger social unrest, after episodes of strife this year in Mexico and Yemen.

Dairy products have ­so far registered the largest price increase, rising almost 65 per cent over the past 12 months, while grains and vegetable oil have surged almost 40 per cent. Meat prices have risen by about 6 per cent. Sugar costs, on the other hand, have declined by almost 35 per cent.

Mr Gurkan said that the food crisis had the potential of having an impact on long-term nutrition in contrast to previous episodes, which “were short lived and without lasting impact”.

Copyright The Financial Times Limited 2007