02/04/2011, 00.00
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World food price uncertainty presents social risks

Food reaches record prices. Lower output cannot explain price hikes. Many point to speculation. The UN warns that hunger could lead to more social unrest.

New Delhi (AsiaNews/Agencies) – World food prices rose to a record high in January, this according to the UN's Food and Agricultural Organisation (FAO), a situation that is “likely to persist in the months to come," FAO economist Abdolreza Abbassian said, thus increasing the potential for social unrest.

The FAO Food Price Index was up 3.4 per cent from December, the seventh monthly rise, reaching its highest level since records began in 1990. Lower supply due to natural disasters and higher demand from emerging nations like China and India are seen as the main culprits.

Drought and fires wiped out cereal production in Russia (see “Russia bans wheat exports,” in AsiaNews, 6 August 2010) and heavy rains in western India cut onion production.

However, some experts note that despite the fact that the total rice production in Bangladesh was 14 per cent higher in fiscal year 2009-10 than a year before, prices of the staple went up as high as 33 per cent in the past year (see “Rice yields down, prices up in Asia,” in AsiaNews, 27 October 2010).

In Vietnam’s Mekong Delta provinces, the rice crops meet local demand, but the price rose by 15 per cent because of speculation as local traders buy rice for export to the Philippines at US$ 400 a tonne, up by 6.4 per cent from last month.

This is nothing new. A few years ago, the price of bread and flower rose despite bumper wheat crops (see “The "grain crisis" spreads in Asia, from Kazakhstan to China,” in AsiaNews, 16 April 2008).

Even if FAO has downplayed this factor, many point the finger at speculation. Some experts blamed the existing international food marketing system, which is based on buying and selling of futures contracts. Although designed to maintain stable prices on the short run, the system has not prevent price hikes to the detriment of the poorest and neediest people.

Oil is a case in point of how the system works. Brent crude traded at US$ 103.37 a barrel on the ICE Futures Europe exchange in London yesterday, an upward trend that is likely to continue.

Oil prices in fact are not determined by supply alone but also by expectations about growing demand, investors’ interests and political factors that might threaten supplies.

China’s growing oil imports for industrial and private use is pushing prices up. Protests in Egypt are having the same effect as buyers factor in the possible closure of the Suez Canal and its nearby oil pipeline, which carries about 2 million barrels a day, or 2.5 per cent of world oil production.

Food prices are affected by the same mechanism. Their rise is not due only to the interaction of supply and demand. Growing demand, speculation and political or natural events that can affect production or supply are also part of the picture.

Other raw materials are not immune to this. Copper for instance is now selling at a record high of US$ 10,000 a tonne.

All this is having a chain effect. Higher oil prices bumps up the price of other commodities as well as the cost of living, and vice versa.

Other experts blame higher prices on the financial policies of certain countries, like the United States, which has flooded the markets with liquidity, pushing up global inflation (see Maurizio d’Orlando, “Riots caused by high prices are the result of US Fed policies,” in AsiaNews, 27 January 2011).

If this is the case, unchecked price rises might continue with inevitable impact on social stability. Recent anti-government protests in Algeria and Tunisia, which contributed to unrest in Egypt, were caused by higher food prices. The same thing led to street protests in 2008 in Egypt, Cameroun and Haiti.

"We are entering an era of food volatility and disruptions in supplies. This is a very serious business for the world," said Josette Sheeran, executive director of the World Food Programme. "If people don't have enough to eat they only have three options: they can revolt, they can migrate or they can die. We need a better action plan”.

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