Global General

Food prices rise on weather, improved living standards

By He Wei (China Daily)
Updated: 2011-02-10 09:04

BEIJING - Extreme weather, improved living standards and increased global liquidity have pushed up food prices in emerging markets, experts say, but the risk of a jump in speculative demand for grain remains low.

A United Nations index tracking the global prices of cereals, oilseeds, dairy products, meat and sugar, surpassed its previously monthly high and reached its peak in January, ringing worldwide alarm bells that millions of people were at the risk of food insecurity.

Recent floods in Australia, last summer's drought in Russia, and bad weather in South America and China, are factors directly contributing to the soaring prices, said Ai Jichang, a government relations officer with the World Food Program.

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Australian Treasurer Wayne Swan warned in late January that the flooding across vast parts of Queensland and Victoria states, both key agricultural regions in the country, would cause food prices to jump in the coming months.

Ai said Australia's wheat output are expected to be affected as the fourth-largest wheat exporter and sugar and cane grower is warning of production problems for up to three years.

Impressive GDP growth in emerging markets also prompted growing demand for food, causing an uneven demand-supply structure, said Chen Fengying, director of the Institute of World Economic Studies at the China Institutes of Contemporary International Relations.

In India, Amrith Mathur, a software engineer buying vegetables at a wholesale market in New Delhi, told the Wall Street Journal that the price rises have undermined his salary increases.

"I got a paltry increment of 5 percent in salary after a gap of two years this year, but thanks to the prices of essential commodities which have skyrocketed, the rise is as good as nil," he said.

"How can the government achieve their tall growth target of 9 to 10 percent, if the people's spending power is getting less and less by the day," he said.

"In many Asian and African countries, people can now afford to buy a lot more food than they used to," Chen said, "but arable land keeps shrinking, as the development of biofuels has taken up quite a lot of space for growing crops."

Indonesia has been hard hit by a fivefold hike in the price of chilli, a household necessity.

The country's president, Susilo Bambang Yudhoyono, at a recent cabinet meeting called for families to grow food in their own gardens, urging people to be "creative", with Trade Minister Mari Pangestu leading the way in planting at his home, Reuters reported.

"I have 200 chilli plants in flowerpots," the minister said. "The Agriculture Ministry is informing farmers how to take care of the plant and also encouraging consumers to plant chilli in their own yards."

Growing market liquidity also plays a role in pushing up food prices, Chen noted.

Swiss bank Credit Suisse has projected inflation in Asia, excluding Japan, to peak at around 15 percent by June, according to a recently released research report.

Soybean prices in the past six months have risen 46 percent to more than $14 a bushel at the Chicago Board of Trade. Sugar, while lower than in November, is still up 34 percent over six months ago at around 31 cents a pound in Intercontinental Exchange Trading.

But Chen said the risk of a jump in speculative demand for grains has fallen significantly, in contrast with the situation in 2008, "because the international community has had early warnings, and countries have instituted price controls to counter commodity speculation".

Similarly, Credit Suisse in January played down the prospects of the situation deteriorating to 2008 levels, saying it would take a particularly strong "new shock" for price rises to continue, according to AFP.

But World Bank President Robert Zoellick, quoted by AFP, warned earlier this year of soaring prices as "a threat to social stability", as recent disturbances in some Middle Eastern countries were partly sparked by rocketing food prices.