A Day's Wages for a Loaf of Bread

World 'Dangerously Close' to New Food Crisis, United Nations Says

November 17, 2010

Financial Times - The bill for global food imports will top $1 trillion this year for the second time, putting the world "dangerously close" to a new food crisis, according to the United Nations.

The warning by the world body's Food and Agriculture Organization adds to fears about rising inflation in emerging countries from China to India.

"Prices are dangerously close to the levels of 2007-08," said Abdolreza Abbassian, an economist at the FAO.

The note of worry was sounded Wednesday in the FAO's latest twice-yearly Food Outlook, along with a warning that the world should "be prepared" for even higher prices next year. The report said it was crucial that farm production - particularly of corn and wheat - "expand substantially" in 2011-12 to meet expected demand and rebuild world reserves.

But the FAO also said the production response may be limited, because rising food prices have made other crops, including sugar, soybeans and cotton, attractive to grow.

"This could limit individual crop production responses to levels that would be insufficient to alleviate market tightness. Against this backdrop, consumers may have little choice but to pay higher prices for their food," it said.

The agency raised its forecast for the global bill for food to $1.026 trillion this year, up nearly 15 percent from 2009 and within a whisker of an all-time high of $1.031 trillion set in 2008 during the food crisis.

"With the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011," the FAO added.

In the 10 years before the 2007-08 food crisis, the global bill for food imports averaged less than $500 billion a year.

Editor's Note: The increased volatility in food prices of the last decade can be attributed to the “financialisation” of commodities due to the Commodities Futures Modernization Act of 2000. The game changed for commodities the minute the legislation passed in the early evening of Friday, December 15, 2000, with Christmas break only hours away.

Agricultural commodities prices have surged after a series of crop failures caused by bad weather. The situation was aggravated when top producers such as Russia and Ukraine imposed export restrictions, prompting importers in the Middle East and North Africa to hoard supplies. The weakness of the U.S .dollar, in which most food commodities are denominated, has also contributed to higher prices.

The FAO's food index, a basket tracking the wholesale cost of wheat, corn, rice, oilseeds, dairy products, sugar and meats, jumped last month to levels last seen at the peak of the 2007-08 crisis. The index rose last month to 197.1 points - up nearly 5 percent from September.