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World Bank warns of food price volatility

Vigilance vital as stocks remain low, top official says

Gulf News

Dubai: Global food prices jumped 33 per cent in July 2011 over those of a year ago, according to the World Bank. It cautioned that, when combined with continued volatility, they put the poorest people in the developing world "at continued risk".

The World Bank's Food Price Watch released yesterday says, "Prices overall remained 33 per cent higher than a year ago with commodities such as maize (up 84 per cent), sugar (up 62 per cent), wheat (up 55 per cent) and soybean oil (up 47 per cent) contributing to the increase."

The quarterly report warns that vigilance is needed as global food stocks remain low and expected volatility in the prices of sugar, rice, and petroleum products could have unexpected effects on food prices in the months ahead.

"Uncertainties about the global economy combined with the political situation in the Middle East and North Africa will likely to keep oil prices volatile in the short term," it added.

Across the UAE, government officials are touring retail outlets to maintain a price cap of essential food price in place. "While the emergency in the Horn of Africa was triggered by prolonged droughts, especially in areas struggling with conflict and internal displacement such as Somalia, food prices that are near the record high levels seen in 2008 also contributed to the situation," the report said.

Over the last three months, reportedly 29,000 children under five have died in Somalia and 600,000 children in the region remain at risk in the ongoing crisis that is threatening the lives and livelihoods of more than 12 million people.

"Nowhere are high food prices, poverty and instability combining to produce tragic suffering more than in the Horn of Africa," said World Bank President Robert B. Zoellick.

"Persistently high food prices and low food stocks indicate that we're still in the danger zone, with the most vulnerable people the least able to cope," Zoellick said. "Vigilance is vital given the uncertainties and volatility that exists today. There is no cushion."

The report also says sustained increases in food prices are driving up inflation in a number of countries such as Ethiopia and Guatemala.

In Somalia, prices of locally produced cereals have continued to increase in all regions since October 2010 and have now exceeded their 2008 peak. Prices of the two major commodities that are domestically produced, red sorghum and white maize, have increased up to 240 per cent and 154 per cent respectively.

However, analysts have warned of a possible commodity shock.

Weak dollar

Pradeep Unni, senior analyst, Research and Trading at Richcomm Global Services, told Gulf News that the weakened dollar could add to this. "The prices of essential food commodities are 30 per cent linked to the currency value while the remaining 70 per cent of the price volatility is related to climate and geo-political situation, demand and supply. A weak US dollar could push up prices of food grain."

Cost hits production

Crude oil prices are 45 per cent higher from July 2010 levels, affecting production costs and the price of fertilisers, which increased by 67 per cent over the same period, the World Bank report said.

Guy Monson, Chief Investment Officer, Managing Partner, Sarasin & Partners, said, "Longer-term political stability and a lower risk premium in the Middle East could lead to further declines in the oil price, transferring money from oil-producing economies with a low propensity to consume to oil-consuming economies with a high propensity to consume."