Thursday, May 29, 2008

Food Prices To Stay High on "Grain Drain" Fuel

Food prices to stay high on "grain drain" fuel
By Brian Love

Food prices will remain high over the next decade even if they fall from current records, meaning millions more risk further hardship or hunger, the OECD and the UN's FAO food agency said in a report published on Thursday.

Beyond stating the immediate need for humanitarian aid, the international bodies suggested wider deployment of genetically modified crops and a rethink of biofuel programs that guzzle grain which could otherwise feed people and livestock.

The report, issued ahead of a world food summit in Rome next week, said food commodity prices were likely to recede from the peaks hit recently, but that they would remain higher in the decade ahead than the one gone by.

Beef and pork prices would probably stay around 20 percent higher than in the last 10 years, while wheat, corn and skimmed milk powder would likely command 40-60 percent more in the 10 years ahead, in nominal terms, it said.

The price of rice, an Asian staple expected to become more important also in Africa in the years ahead, would likely average 30 percent more expensive in nominal terms in the coming decade than over the 1998-2007 period.

"In many low-income countries, food expenditures average over 50 percent of income and the higher prices contained in this outlook (report) will push more people into undernourishment," the report said.

Millions of people's purchasing power across the globe would be hit, said the report, co-produced by the Food and Agriculture Organization, the U.N. food agency in Rome, and the Organization for Economic Co-operation and Development in Paris.

The cost of many food commodities has doubled over the last couple of years, sparking widespread protests and even riots in some of the worst affected spots, such as Haiti.

Many factors, including drought in big commodity-producing regions such as Australia, explained some of the acceleration in prices, as did growing demand from fast-developing countries such as China and India, the report said.


But it singled out the big drive to produce biofuels as an alternative to fossil fuels, a push the U.S. government is sponsoring heavily, and Europe as well.

"Biofuel demand is the largest source of new demand in decades and a strong factor underpinning the upward shift in agricultural commodity prices," said the report, adding it was time to consider alternatives.

The benefits at environmental and economic level as well as in terms of energy security were "at best modest and sometimes even negative," the report said.

Under U.S. plans, about a quarter of the U.S. corn crop will be channeled into ethanol production by 2022 while the European Union is also aiming for as much as 10 percent of road transport fuel to be produced using crops by 2020.

While it was hard to always identify exactly how much retail food prices were affected by food commodity prices, the direct impact was clearer in poorer countries where there is less of the value-added, packaged and processed food that is consumed more in wealthy regions, the report said.

The proportion of total funds that households use to pay for food varies hugely, from more than 60 percent in Bangladesh, to 40 or 50 percent in many other developing countries, and just 10 percent in the United States or Germany, or 27 percent in China, the report said.

It also highlighted the impact of financial investors in the commodities futures markets, saying this added upwards pressure on prices in the short term but that the jury was still out as to the long-term impact, beyond generating greater volatility.

(Additional reporting by Sybille de la Hamaide, Editing by Peter Blackburn)

Copyright © 2008 Reuters Limited.

Another reason to make sure I water my garden today. I wish I could grow rice!

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