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EU exec talks down risk of food price crisis

Commission says price of key staples well below 2008 peaks; Era of cheap food is over; Supply response next year.

January 15, 2011 11:28 by

The European Union’s executive on Friday played down the risk of a repeat of 2008’s food price crisis, saying current world grain stocks were much higher than then, but warned the era of cheap food had ended.

Last week the U.N.’s Food and Agriculture Organisation (FAO) said its measure of food prices had hit its highest since records began in 1990, topping levels seen in 2008 when price spikes sparked deadly riots in some countries.

Rising food prices in North Africa and the Middle East are biting, with protests reaching Jordan on Friday following riots in Algeria and Tunisia, which have had many countries in the region cutting food prices and food taxes.

The European Commission’s farms spokesman Roger Waite said the FAO’s food price index is weighted according to the export share of developing countries, and that global prices for wheat, maize and rice were all significantly below their 2008 peaks.

“We think that in the EU there will be a supply response (in the shape of increased production) which will allow prices to calm down a little bit,” Waite told Reuters in an interview.

“Still, even after 2012 when prices come down to a more normal level we are left on a different plateau. We are at a much higher level than we used to be in the first part of the 2000s,” he added.

The Commission was making the point that while future food prices are unlikely to return to the very low levels seen at the turn of the millennium they are still well below the peaks seen in 2008, echoing comments in a World Bank report this week.

The World Bank said that while food prices ended 2010 just 7 percent below their June 2008 peak in dollar terms, in real local currency terms they remained 30 percent below that level.

“What matters for people — particularly in developing countries — is the price in their own local currencies, and most of these currencies have appreciated compared with the dollar,” the lead author of the World Bank report, Andrew Burns, told Reuters in an interview.

Burns said a repeat of last year’s poor harvest — when grain production in Russia and its Black Sea neighbours was hit by drought — could see prices return to the spikes of 2008.

“But our sense is that unless there’s another bad crop year next year, that’s not the most likely scenario,” he said
Burns discounted any long term risk of global food shortages, projecting that agricultural productivity growth would exceed population growth for the planet as a whole.

The Commission believes that agricultural commodity markets are set to experience greater price volatility in future, largely irrespective of agricultural market fundamentals.

“Most of this price volatility is not linked to agricultural markets. It’s linked to the manner in which agricultural markets are captured by other markets,” Waite said.

But Burns said that a link between volatility in agricultural markets and wider financial market activity has not yet been proved.
“The economics profession has been looking intensively at this question for the last ten years or so, and so far there is no conclusive answer,” he said.

“What’s pretty clear is that financial investment can’t have the impact of affecting prices over the very long term. That’s going to be dependent on the demand and supply side in the fundamental market,” Burns added.

(Reporting by Charlie Dunmore; editing by David Brunnstrom and Keiron Henderson)

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