Stability in markets will be determined by size of next year's crop

The Food and Agriculture Organisation (FAO) has warned about a further increase in global food prices in 2011 if there is no significant increase in production of major food crops.

In the latest edition of its “Food Outlook” report, the agency observed that the rise in global prices, all of which was accruing in the second half of 2010, owing to a mismatch in demand and supply, was pushing the overall food import bill closer to the peak reached in 2008 — the recent crisis year.

The report said the international food import bills could surpass the $1 trillion mark in 2010, with prices of most commodities shooting up sharply since 2009.

The import bills of the world's poorest countries were predicted to rise by 11 per cent and by 20 percent for the low-income food-deficit countries in 2010.

“With the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011 and be prepared,” the FAO warned.

Price increases, seen for most agricultural commodities over the past six months, were the result of a combination of factors, especially: unexpected supply shortfalls due to unfavourable weather events, policy responses by some exporting countries by cutting exports, and fluctuations in currency markets.

Contrary to earlier predictions, world cereal production, which was now 2,216 million tonnes, was 2 per cent below the previous year's level, against the anticipated 1.2 increase in June.

Most of the downward revision involving wheat and coarse grains followed cuts in production in major grain producing countries in the Commonwealth of Independent States (CIS) and shortfall in yields in the European Union, Canada and the United States.

World cereals stocks too were expected to be lower by 7 per cent, with wheat reserves plunging by 10 per cent, barley 35 per cent and maize 12 per cent. Only rice reserves were foreseen to increase by 6 per cent, the report said.

Sugar was an important factor that caused the rise in the price of the global food basket in recent months. Sugar prices, which recently surpassed 30-year highs, were elevated and extremely volatile.

In the oilseeds sector, firm prices reflected a relatively slow growth in world production, failing to keep pace with the fast expanding demand, the report stated.

Attention was now on cultivation for the 2011-12 season, as the size of next year's crop would be critical in setting the tone for stability in international markets.

For major cereals, production must expand substantially to meet the demand and to reconstitute reserves.

However, cereals may not be the only crop farmers would try to produce more, as rising prices had made other commodities such as soybean, sugar and cotton, attractive to plant, the report noted.

“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 food,” the report added.