Better supplies to drive world food prices lower in 2012

MILAN (Reuters) - Improved grain supplies will help lower food prices this year after sharp rises in 2011 and take the wind out of price volatility, easing inflation concerns, a senior official at the United Nations' food agency told Reuters on Monday.

Over the next decade, however, prices are set to rise for major food and agricultural commodities, Abdolreza Abbassian, senior grain analyst and economist at the UN's Food and Agriculture Organization (FAO), said at the Reuters Food and Agriculture Summit.

"We do expect the food prices in 2012 to be averaging perhaps slightly below 2011. We expect also slightly less volatility this year compared to last year because of better inventories," Abbassian said in a telephone interview.

World food prices measured by FAO hit a record high in February 2011, helping to stoke unrest in some countries. Average annual prices in 2011 were the highest level since the agency started measuring global food prices in 1990.

Food and beverage companies will benefit from lower prices of agricultural commodities, such as grains and meat, after their profits were dented by high commodity costs last year.

Commodity prices are set to be a main theme when top executives from food, drink and agricultural companies, including Nestle (NESN.VX), General Mills (GIS.N) and Cargill CARG.UL, attend the Reuters Food and Agricultural Summit in Chicago which runs March 12-15.

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Graphics on agricultural food prices:

link.reuters.com/vuc96s

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Global food prices rose 1 percent on the month in February, increasing for a second straight month and adding to inflation concerns, the FAO said on Thursday. Prices still remained some 10 percent off a peak hit in February 2011.

Abbassian said on Monday the recent upturn would not usher in the high prices seen a year ago.

"What distinguishes this year from last year is that we have better inventories for certain crops," Abbassian said.

The Rome-based FAO has raised its estimate of world grain inventories at the end of the season in 2012 to 518 million tonnes from an earlier estimate of 516 million tonnes as record cereal production last year helped to replenish stocks.

Weather in the major producing countries will be one of the main drivers for farm commodities in the next few months as crops go through planting and harvesting, with corn and soybeans seen firmly underpinned by bad crop weather, Abbassian said.

On the contrary, sugar prices are expected to experience downward pressure until the middle of this year thanks to strong exports from Thailand and Russia, he said.

The U.S. Department of Agriculture expects global crop prices to retreat sharply this year as farmers around the world expand production, bringing stability back to commodity markets and easing food inflation fears.

PRICES TO RISE IN THE NEXT 10 YEARS

Abbassian said longer term food and agricultural commodities prices are set to remain at high historical levels and volatility would continue.

"Definitely, in the nominal terms we are going to see a growth in prices across the board for almost all commodities in the next 10 years," said Abbassian, who is on the OECD-FAO Agricultural Outlook team which produces long-term price outlooks.

Ever growing dependence of agricultural commodities prices on energy prices and foreign exchange fluctuations would rock world food markets, with low income developing countries hitting hardest, he said.

"Food security is a problem which will not go away. We have some 1 billion people hungry. It will certainly be an issue in 2012 and beyond," he said.

Climate change is set to be one of the biggest challenges for food security, with increasingly sharp weather changes making it difficult for farmers to make planting decisions and hitting sown crops, Abbassian said.

"Markets are becoming very unpredictable largely driven by unpredictable harvests," he said.

(For summit blog:

blogs.reuters.com/summits/)

(Additional reporting by Nigel Hunt in London, Guz Trompiz in Paris and Michael Hogan in Hamburg; editing by Jason Neely)