FAO wants price curbs and warns of food crisis: report

TOKYO Tue Jan 25, 2011 12:26am EST

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TOKYO (Reuters) - Rules are needed to curb speculation in surging commodity prices as the world heads toward a food crisis that threatens political instability, the head of the U.N.'s food agency said.

The warning, in comments published in Japan's Nikkei business daily on Tuesday, echoed a call the previous day by French President Nicolas Sarkozy, who said the world risks food riots and weaker growth if global leaders fail to deal with volatile food prices.

"Higher prices and volatility will continue in the next years if we fail to tackle the structural causes of imbalances in the international agricultural system," Director-General of the U.N.'s Food and Agriculture Organisation (FAO), Jacques Diouf, said in written comments to the Nikkei.

It quoted him as saying the world may be on the verge of another major food crisis, with farm subsidies and tariffs playing a major role in distorting the global supply-demand balance.

In a report this month, the FAO said its global price index hit a record high in December, outstripping levels in 2008 when soaring food prices triggered riots in several countries.

Worries about poor weather have led to warnings that prices of key grains could rise further this year.

Food insecurity will affect the poorest populations most seriously, and this "will generate political instability in countries and threaten world peace and security," Diouf was quoted as saying.

In comments on Monday at the start of France's stewardship of the Group of 20 (G20), Sarkozy questioned why money markets were regulated but not those for commodities.

"If we don't do anything we run the risk of food riots in the poorest countries and a very unfavorable effect on global economic growth," the French president said. "The day there are food riots, what country at the G20 table will say this does not concern them?"

The FAO's Diouf made much the same point, saying there was "a pressing need for new measures of transparency and regulation to deal with speculation on agricultural commodity futures markets."

He blamed trade barriers in advanced economies as distorting the supply and demand balance.

The surge in agricultural markets of such crops as wheat and sugar has fueled protests in parts of North Africa and the Middle East.

Over the next 40 years, a 70 percent increase in agricultural production will be needed worldwide and a 100% increase in developing countries to meet the demands of an growing population.

That meant $44 billion a year was needed in official development aid in agriculture. Private investment should increase by $60 billion to $200 billion a year.

The money should be used to help finance small water-control works, local storage facilities, rural roads and such facilities as fishing ports and slaughterhouses in developing nations, he was quoted as saying.

(Reporting by Yoko Kubota; writing by Jonathan Thatcher)

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