Price surge sparks fears of food crisis, restrictions
The world could face a food crisis of the kind seen in 2007-2008 if countries restrict exports on concerns about a drought-fuelled grain price rally, the UN’s food agency warned on Thursday, after reporting a surge in global food prices in July.
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.
Concern about extreme hot and dry weather in the U.S. Midwest sent corn and soybean prices to record highs last month, driving overall food prices higher again and reversing the Food and Agriculture Organization’s forecast for declines this year.
“There is potential for a situation to develop like we had back in 2007-2008,” the FAO’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 2007-2008. But if those policies get repeated, anything is possible.”
A number of major producers imposed various restrictions on exports in an attempt to control domestic prices in the 20072008 crisis, including outright bans as well as quotas or higher tariffs on exports of foods including rice, corn and wheat.
The restrictions reduced supply on international markets, helping to drive prices even higher.
Grain markets have been boosted recently by speculation that Black Sea grain producers, particularly Russia, might impose export restrictions after a drought there hit crops.
Markets drew a little comfort from official Russian comments on Wednesday that the country saw no grounds to ban grain exports this year but did not rule out protective export tariffs after the end of the 2012 calendar year.
Meanwhile, U.S. weather updates on Thursday showed no major let-up from the relentless drought in the U.S. Midwest that has slashed the corn crop and is now eating away at soybean production prospects, an agricultural meteorologist said. “No significant shift from the pattern short term, there will be a few light showers but no soaking rains,” said Kyle Tapley, meteorologist for MDA EarthSat Weather. Tapley said light showers and cooler temperatures could be expected through the balance of this week which will provide minimal relief to crops that have been struggling against the yield-robbing impact of the worst drought in 56 years. In its monthly index update, the FAO said its Food Price Index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 213 points in July, up six per cent from 201 points in June.
The rise, which followed three months of declines, was driven mainly by a surge in grain and sugar prices, while meat and dairy prices were little changed, the FAO said.
It said the U.S. drought, which is the worst to hit the Midwest in 56 years, had pushed up corn prices by almost 23 per cent in July, and international wheat prices had followed, rising about 19 per cent amid worsening output prospects. Although below a peak of 238 points in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa, the index is still higher now than during the food price crisis in 20072008.