Tighter food supplies, high prices to persist

MILAN (Reuters) - World food prices are set to remain high in 2011/12 with supplies tightening and demand running strong, the United Nations’ food agency economist told Reuters on Wednesday after a new jump in prices.

“The chances of prices to remain high and extremely volatile well into 2011/12 are stronger than ever,” FAO’s economist Abdolreza Abbassian told Reuters in a telephone interview.

Food prices rose in November on the back of surging sugar and strong gains in cereals and oils.

That was despite the lack of fundamentals which could have justified the rises and also a stronger dollar, which usually sends agricultural commodities prices lower, Abbassian said.

“That shows that there is tremendous market sentiment in favor of high and perhaps still rising prices,” he said.

Agricultural commodities demand remained strong, triggering an increased use of reserves and fuelling concerns about tighter supplies next season, especially because the level of new plantings situation in producing countries remained unclear, he said.

“For this season, there is certainly enough supplies, even if at higher prices, but this is not something that could be guaranteed in 2011/12 without a considerable increase in plantings,” Abbassian said.

The International Grains Council has said it expected global wheat areas for the 2010/11 crop to rise but warned about tightening of global grain supply/demand outlook.

Abbassian said wheat would have to compete with other crops for new sown areas. He said there were concerns about wheat plantings in Russia, a major producer, and uncertainty over whether it would export or import grain next season.

Russia was hit by drought this year. It said last week it would import grain and an industry lobby warned that a shortage of fertilizer and equipment could hit spring crops.


But overall the situation remained different from the 2007/08 food crisis that saw riots in poor countries and panic buying in the richer world.

That was largely thanks to strong local crops in Africa and other developing countries, Abbassian said.

The FAO Cereals Price Index, which includes main staples such as wheat, rice and corn, rose to 224.9 points in November, the highest level since September 2008 but still far from the peaks which triggered social unrest in 2008.

“In many hot spots ... domestic production levels are more adequate than in 2008 ... So far we have not had a panic buying that we witnessed in 2007/08. The combination of these two has taken the heat a little bit off,” Abbassian said.

But if agricultural commodities prices on international markets remained high for a long time vulnerable poor countries which have to import grains would suffer, he said.