In early February of this year Food and Agriculture Organization (FAO) released an updated report on the growth index of food prices. According to the data, in January the price index for food increased by 3.4% compared to December last year and reached 231 point. This is the highest level since 1990, as FAO began to conduct such a monitoring.
FAO food price index is formed on the base of a basket, which includes grain, oilseeds, dairy products, meat and sugar.
In January the highest price increase was recorded for dairy products (+6.2%), oil (+5.6%) and grain crops (+3%). The latter is explained by reduced exports of wheat and maize. Meat prices remained the same. Here, as experts note, played the role two complementary factors: if, on the one hand, a scandal in Germany associated with the export of contaminated meat had a lowering effect on prices of meat products, on the other hand, a relative rise in prices on meat imports from Brazil and the United States offset this price fall.
World prices for basic foodstuffs, including flour, sugar and milk grow the seventh month in a row. According to observers, this trend of growth in food prices is dictated by a number of factors. Among the first is climate change and natural disasters. Heat waves in Russia last year led to the drought, which resulted in a reduction of the wheat crop. To avoid possible domestic food crisis, the Russian government imposed the ban on grain exports. A similar drought in China and floods in Australia also contributed to higher prices.
A relative recovery of the global industry is accompanied by an increase in demand, as well as commodity prices, primarily for oil, coal, ferrous and nonferrous metals, which naturally leads to an increase in global food prices.
Tendencies associated with an expansion of biofuel production also have an impact on rising of global food prices. In particular, ethanol production, experts note, is associated with a consumption of substantial quantities of grain. As a result, there is a sort of rivalry between energy and food demands for the same goods, i.e. crops. A similar “competition for land” is also observed with regard to cotton, the world price of which has recently significantly grown.
According to Abdolreza Abbassian, a FAO economist, "prices are likely to remain high. High food prices are a major cause of concern for low-income countries and those experiencing food shortages. These countries may face financing problems by food imports. The most affected will be poor households that spend a large portion of their income on food".
It is noteworthy that one of the factors that triggered unrests in North African countries (Tunisia and Egypt, where the lion's share of household income goes to cover food expenditures) was higher prices of basic foodstuffs. In turn, response actions of the authorities and preventive steps taken by governments of neighboring countries on urgent procurement of grain and other food products, have also spurred further growth, or contributed to maintaining high food prices at least.
Conjuncture on the world food market resides in the dynamics so far. It is rather difficult to make a definite assessment of further development of the situation. Nevertheless, most experts are pessimistic about the quick changes for the better.
A. Isabaev
CPS Expert
1. ФАО: в январе мировые цены на продовольствие были самыми высокими с 1990 года. Центр новостей ООН. 3 февраля 2011 г. http://www.un.org/russian/news/fullstorynews.asp?NewsID=15012
2. Всплеск цен на продовольствие и сырье провоцирует кризис. ПРАЙМ-ТАСС. 3 февраля 2011 г. http://www.prime-tass.ru/news/articles/-201/%7B7854860B-BA64-42F3-A0FE-24477A82F53A%7D.uif
3. Цены на продукты бьют рекорды. AFP. 4 февраля 2011 г. http://www.inosmi.ru/world/20110204/166256236.html
4. Droughts, Floods and Food. By Paul Krugman. The New York Times. February 6, 2011. http://www.nytimes.com/2011/02/07/opinion/07krugman.html?src=me&ref=general
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