High food prices to persist

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

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 favour 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. Following last year’s droughts, Russia has announced it will import grain and an industry lobby warned that a shortage of fertiliser 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.