Food crisis looms: FAO

A jump in oil prices and the fast recent drawdown in global stocks of cereals could herald a supply crisis, FAO Director-General Jacques Diouf told Reuters in an interview during a visit to the UAE.

“The high prices raise concern and we’ve been quickly drawing down stocks. For years we have warned that what is needed is more productivity and investment in agriculture.”

February’s UN Food Price Index rose for the eighth consecutive month, to the highest levels since at least 1990. Every commodity group except sugar rose last month.

Diouf said until recent months, global stocks of cereals were at much healthier levels than the dwindling supplies that set off a crisis in 2007 and 2008.

Last July, inventory levels were a full 100 million tonnes higher than during 2007, but rapid economic growth in developing countries, and a return to growth in highly industrialised economies, has led to new drawdowns.

A number of countries in North Africa and the Middle East have made big grain purchases to head off the sort of unrest, partly fuelled by food prices, which has toppled the leaders of Tunisia and Egypt.

South Korea is looking to build a strategic grain reserve and is planning to buy cargoes of corn and another staples, joining similar efforts by other Asian nations worried about high food prices and social unrest.

In December, Mexico bought millions of tonnes of corn futures to guard against price hikes for tortillas that sparked street riots in 2007.

“It is a rational thing to do, to cover yourself, Diouf said.

The recent surge in oil prices, which rose to nearly $120 per barrel in late February, is exacerbating food price rises that may crimp developing countries’ ability to cover food import needs, Diouf said. Oil prices impact transportation costs and agricultural inputs including fertilisers.

Biofuels

The FAO has asked developed countries to re-examine their biofuels strategies — which include large subsidies — since these have diverted 120 million tonnes of cereals away from human consumption to convert them to fuels.

“We’ve been advising member countries to revisit these policies” Diouf said. “Relying on more renewable energy does not mean you have to make more biofuels.”

Developed countries give $13 billion in annual subsidies and protection to encourage biofuels production, Diouf said. In the United States, corn stocks have dipped to near 15-year lows as more of the crop is used for making ethanol. Avoiding another food crisis hinges on crop yields in the next harvest season, as well as how economic growth impacts demand, Diouf said. But he also said rising food prices and oil prices could have a detrimental effect on growth.

It was too early to determine whether the recent earthquake and tsunami in Japan, the world’s top grain importer, will have any effect on global supply or demand of agricultural products, Diouf added.