Rising food prices - a global concern

A woman passes nearby burning tyres in a street in Maputo, Mozambique Thursday, Sept. 2, 2010 a day after police opened fire on stone-throwing crowds who were protesting rising prices in this impoverished country/ Photo credit: AP

With memories still fresh of food riots set off by spiking prices just two years ago, agricultural experts have cast a wary eye on the steep rise in the cost of wheat prompted by a Russian export ban and the questions looming over harvests in other parts of the world because of drought or flooding.

Food prices rose 5% globally during August, according to the United Nations, spurred mostly by the higher cost of wheat, and the first signs of unrest erupted as 10 people died in Mozambique during clashes ignited partly by a 30% leap in the cost of bread.

“You are dealing with an unstable situation,'' said Abdolreza Abbassian, an economist at the United Nation's Food and Agriculture Organization in Rome.

“People still remember what happened a few years ago, so it is a combination of psychology and the expectation that worse may come,'' he added. “There are critical months ahead.''

The FAO has called a special session of grain experts on September 24 to address the supply question. Given that the fields stretching out from the Black Sea have been the main source of a huge leap in wheat trade over the past decade, the fluctuating weather patterns and unstable harvests there will have to be addressed, he said.

It is an issue not limited to Russia alone. Harvest forecasts in Germany and Canada are clouded by wet weather and flooding, while those in Argentina will suffer from drought, as could Australia, according to agricultural experts. The bump in prices because of the uncertainty about future supplies means the poor in some areas of the world will face higher bread prices in the coming months.

Food prices are still some 30% below the levels of 2008, Abbassian noted, when a tripling in the price of rice among other staples led to food riots in about a dozen countries and helped topple at least one government.

The wheat crop this year globally is also the third highest on record, according to FAO, but the sudden supply interruptions make the markets jittery. In June, Russia was predicting a loss of just a few million metric tonnes due to hot weather, but by August it announced it would lose about one-fifth of its crop. Wheat prices more than doubled in that period.

A decade ago, the area around the Black Sea - mainly Russia, Ukraine and Kazakhstan - used to supply just about 4% of the wheat traded internationally. But most of the growth in demand globally has been supplied from there, and the region now produces about 30 per cent of the wheat traded internationally, said Abbassian. This is the first time a supply crisis has originated from that area, he noted.

In early August, Russia had announced an export ban that it would review at the end of the year, but Prime Minister Vladimir Putin announced on Thursday that the ban on grain exports would extend into 2011. The price of wheat jumped again, and that has had a spill over effect into other grains like corn and soybeans. The forecast for the global rice harvest has also dropped, though it is still expected to be higher than in 2009 and should be a historical record, FAO said.