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High Food Prices Likely to Continue For a Decade

High food prices will continue for at least a decade even if they drop from the levels that sparked street protests or riots in Africa, Asia and the Caribbean in recent months, government-backed international agencies say.

High prices, caused primarily by demand from fast-developing countries such as China but also by rising investor interest in food commodity futures markets, will hurt the world's poorest countries most, and also the poor in rich countries.

Vegetables
Vegetables

That is the main conclusion of a report to be published on May 29 by the United Nations Food and Agriculture Organisation and the Organisation for Economic Co-operation and Development, according to a document summarising of the key points.

The report, an annual analysis of the food supply outlook in the decade ahead, offers little comfort after a near-doubling of the price of wheat, rise, oilseeds and many other vital crops in the period 2005-2007.

Driven most of all by demand from fast-developing economies, but also the diversion of crops to biofuel production and mounting investor interest in food commodity futures, prices are set to remain above their historical average, if not as high as now.

Though the outlook for crop harvests in 2008 was generally positive, the OECD and FAO experts said supply and reserve stocks will still not be enough to satisfy needs this year, and likewise in the forecast period, up to 2017.

The OECD has made no secret of its reservations about the impact of the diversion of corn into biofuel production.

Officials, who recently discussed food security issues at OECD headquarters in Paris, are also asking whether the use of genetically modified crops should be more widely exploited to improve crop resistance to pests and drought.

In the meantime, the Paris-based OECD and Rome-based FAO are set to call in their joint report for substantial humanitarian aid to combat the immediate hunger risk, according to the document summarizing its primary conclusions.

As for the impact on developing countries, the conclusion of the FAO and OECD in the document was grim: "For the urban poor and the major food-importing developing countries, the impact will be strongly negative as an even higher share or their limited income will be required for food."

Every 10 percent rise in the price of all cereals including rice added $4.5 billion to the food bill of countries that are net importers of such basic food commodities, the document noted.

Overall, joint OECD/FAO report forecasts the nominal prices of cereals, rice and oilseeds heading between 35 and 65 percent higher between now and 1027 than the average in the past 10 years, the document said.

"Prices in real terms are projected to be 10 percent to 35 percent higher than in the past decade," it added.

Prices for many of those commodities doubled between 2005 and 2007 and continued to climb in 2008, it said.

The impact on richer, developed countries would be more modest because agricultural commodity prices amounted to a smaller amount of final retail prices for food.

"Of course, these averages mask the much more significant impact on lower-income consumers. In addition, and to the extent that high prices persist and hence do not reduce the future rate of inflation, indirect economic impacts might also be important," the document said.

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