Friday, May 30, 2008

United Nations' Food and Agricultural Organization (FAO) Warns of Higher Food Costs

UN warns about higher food costs

Higher food prices may be here to stay as demand from developing countries and production costs rise, says the UN's Food & Agriculture Organisation (FAO).

It warned that the current spike in global food prices was higher than previous records, partly because bad weather had ruined crops.

Although high prices will ease off, other factors, such as rising biofuel demand, will keep future costs high.

The FAO said speculators were also to blame for volatile commodity markets.

Soaring bills

The FAO's annual Outlook report predicted beef and pork prices might be 20% higher by 2017, wheat could be up to 60% more expensive and the cost of vegetable oils might rise by 80%.

World prices for wheat, maize and oilseed crops doubled between 2005 and 2007, and while the FAO expects these prices to fall, the decline may be slower than after previous spikes.

As well as key factors such as weather, supply and demand and energy costs, speculators are also to blame for making commodities prices more volatile, the FAO says.

It is also concerned about the increasing use of crops for biofuels.

"Biofuels are the largest new source of demand for agriculture and are causing higher prices," said Merritt Cluff, one of the authors of the report.

"We are very worried particularly about biofuel policy. US government incentives for ethanol producers are distorting the market," he added.

Looking ahead, climate change may also affect crop harvests, pushing up prices further.

But the hardest-hit by rising food costs will be the poorest people on the planet, where a large share of income is spent on food, the FAO warned.

"We are hugely concerned about the poorest and we expect the number of undernourished people to rise," said Mr Cluff.

The FAO believes the commodity boom has forced some in the developing world to spend more than half their income on food, particularly those countries that have to import much of their food.

But even the its outlook may be too conservative, as the BBC's International development correspondent David Loyn highlighted, predicting price of black gold was a near impossible task.

"One key assumption made is that crude oil prices will peak at $104 a barrel by 2017. The price is already well above that, and some reputable analysts are now predicting oil will go to $200 a barrel," he said.

And he added that while there may be a drop in food prices in coming years, "there is a sting in the tail.

"Prices will level off at a far higher average level than seen before the crisis erupted," he said. "The long era of cheap food is over."

Rising food bills have triggered protests, riots and panic buying in some developing countries.

Earlier this month, the FAO calculated the amount of money being spent globally on importing food was set to top $1 trillion (£528bn) in 2008, a 26% rise on the previous year.

However, the food crisis could also shift the epicentre of global agriculture from developed to developing countries and the FAO predicts that emerging economies will dominate in the production and consumption of most basic foods in 10 years.

Story from BBC NEWS:
Published: 2008/05/29 13:30:07 GMT

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