Global food prices hit all-time high

Dubai: Global prices of grains, sugar, meat and edible oils are at an all-time high and the United Nations Food and Agriculture Organisation (FAO) has warned that this could lead to turmoil in poorer nations that import food.

The Rome-based FAO's food price index, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, averaged 215 points last month, up from 206 points in November.

The current level, fuelled by soaring sugar prices and strength in cereals and oilseeds, was the highest since records began in 1990, and topped the high of 213.5 in June 2008. That high sparked riots in some countries.

International food import bills are expected to have passed the $1 trillion mark last year, the FAO said. In its recent Food Outlook report, the agency warned the international community to prepare for harder times ahead unless production of major food crops increases significantly in 2011.

Food import bills for the world's low-income food-deficit countries are estimated to have risen by 20 per cent last year.

"It's getting a little bit uncomfortable, especially for countries that have to import food at much higher prices," said Abdolreza Abbassian, FAO's senior grains economist.

"Whether or not this will lead to domestic problems, demonstrations, turmoil, riots — the kind of things we saw in 2008 — depends very much on how these countries cope with these high prices and whether they will be transmitted to the domestic market," he said.

Food prices last year rose by 40 to 60 per cent over 2009, but higher grain stocks built up over two years cushioned some of the impact. But these stocks are being depleted.

"We cannot afford another price rise this year. This will be problematic — more so than last year," Abbassian said.

Inflation, however, is a more immediate concern for most nations and may result in rate actions by central banks in high-growth economies.

"Because growth [in the Gulf] is still pretty weak, I don't think the feed through from higher food prices into overall inflation will be as marked as elsewhere. But there will be some impact and higher spending on non-discretionary food items, meaning less income to spend on other goods," said Simon Williams, HSBC's chief economist for the Middle East and North Africa.

Indian Home Minister P. Chidambaram said "there is no tax worse than inflation".

India's food inflation rose to a 10-week high of 14.44 per cent for the week ended December 18, mainly on the back of high prices of onions and other vegetables.

Onion prices increased by almost 40 per cent on an annual basis, touching Rs75-Rs80 per kg. Overall inflation stood at 7.48 per cent for November.

A mix of high oil and fuel prices, growing use of biofuels, bad weather and soaring futures markets pushed up food prices in 2007 and 2008, prompting violent protests in countries including Egypt, Cameroon and Haiti.

Concern that drought might harm Argentine harvests helped corn to jump 52 per cent in Chicago last year and soybeans to rise 34 per cent. Prices also gained as China, the world's largest soybean buyer, became a net corn importer.

Wheat added 47 per cent last year as Russia, hit by its worst drought in a half-century, banned all cereal exports.

— With inputs from agencies