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FAO Sees Demand, Biofuels, Oil Fuelling Food Prices

Date: 19-Feb-10
Country: ITALY
Author: Svetlana Kovalyova

ROME - Resumed demand for agricultural commodities for food and energy use and higher input costs on the back of rising oil prices may fuel a new food price surge, the United Nations' food agency said on Thursday.

Food prices fell from 2008 highs due to the global economic downturn, but remained above pre-peak levels and were set to stay high at least in the medium term, the Food and Agriculture Organization said, confirming earlier forecasts.

"At the same time, various currently latent underlying factors may cause a return to even higher food prices," the Rome-based FAO said in its key report on the State of Food and Agriculture, stopping short of more precise forecasts.

Renewed income growth in developing countries would power demand recovery and drive commodities and food prices higher, threatening food security, especially for poor people, FAO said.

Growing biofuels demand spurred by mandatory targets and incentives in some countries "irrespective of market conditions" would boost prices of maize and vegetable oils used as feedstock for biodiesel and bioethanol and, in turn, of food commodities.

Higher oil prices would translate into increased production costs for farmers as input prices for chemicals and fertilizers as well as higher transport costs would rise.

FAO Food Price Index, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, stood at a 15-month high in January and December but about 20 percent below the peak in June 2008.

The FAO said agricultural output is expected to rise 12 percent in industrialized countries in the next 10 years compared with 2000, while Latin America, Asia and the former Soviet states would grow by 75, 53 and 58 percent respectively.

As agricultural productivity growth declines in many countries, boosting output would require higher costs per unit, the FAO said.

Protectionist measures, including export curbs introduced by some countries during the latest food crisis, would destabilize markets and drive international food prices higher and make them more volatile, the agency warned.

Even stock building by countries, companies and individual producers may trigger commodity price spikes, even though in the longer term higher stock levels would help cut prices, it said.

MORE INVESTMENTS NEEDED

As the global economic crisis pushed the number of hungry people in the world above one billion last year, governments and international organizations should boost efforts to create safety nets and social programs to protect the poor and hungry, FAO said.

But increased investments are needed to boost agricultural output to ensure food security, it said.

FAO has said the world needed to invest $83 billion a year in agriculture in developing world and raise overall output by 70 percent over the next 40 years to feed over 9 billion people in 2050.

With agriculture accounting for a lion's share of economies in poor countries, investments in farming would boost economy there and help eradicate poverty, the agency said.

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