FAO warns of rise in food prices

DESPITE expected bumper cereal harvests, the United Nations Food and Agriculture Organization has warned of possible food price surges over the next two years due to the worsening global financial meltdown.

In its latest issue of the Food Outlook, FAO said that the current financial crisis will adversely affect agricultural sectors in many countries, including those in the developing world.

This is despite the fact that total world cereal production is expected to hit a new record of some 2.24 billion tons in 2008/2009.

A higher global rice production is also expected at 450 million tons during the same period.

However, this year's record cereal harvest and the recent fall in food prices should not create a false sense of security, according to Concepcion Calpe, one of the report's main authors.

"If the current price volatility and liquidity conditions prevail in 2008/09, plantings and output could be affected to such an extent that a new price surge might take place in 2009/10, unleashing even more severe food crises than those experienced recently," Calpe said.

Calpe explained that the financial crisis of the last few months has "amplified downward price movements, contributed to tighten credit markets, and introduced greater uncertainty about next year's prospects, so that many producers are adopting very conservative planting decisions."

The report also noted that most of the recovery in cereal production took place in developed countries, where farmers were in a better position to respond to high prices.

In contrast, developing countries were largely limited in their capacity to respond to high prices by supply side constraints on their agricultural sectors.

FAO said that the sharp 2007/2008 rise in food prices has increased the number of undernourished people in the world to an estimated 923 million.

Lower international commodity prices have not yet translated into lower domestic food prices in most low-income countries, it added.

"There is a real risk that as a consequence of the current world economic problems people will have to reduce their food intake and the number of hungry could rise further," Calpe said.

The FAO report further noted that world agriculture was facing serious long-term issues and challenges that need to be urgently addressed.

These include land and water constraints, low investments in rural infrastructure and agricultural research, expensive agricultural inputs relative to farm-gate prices and little adaptation to climate change.

To feed a world population of more than 9 billion people by 2050, global food production must nearly double.

World population is currently estimated at 6 billion.

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