Are We Heading For Another Global Food Crisis?

Global food prices are on the rise again, the United Nations Food & Agriculture Organization (FAO) reported today, with the agency’s food price Index registering four straight months of increases. According to the FAO’s latest food outlook, the index- a “food basket” composed of cereals, oil seeds,dairies, meat & sugar- averaged 168 points in November 2009, the highest since September 2008.

However, that is still 21 percent bellow its peak in June 2008. Prior to the surge in prices in 2007-2008, the Index never exceeded 120 points and, for most of the time, was bellow 100 points. The FAO added that current market conditions are different from those that triggered the food crisis that started 2 years ago. The agency said that world cereal stocks are at a more “comfortable levels” today than they were during the price surge period.

“At the onset of the price surge in 2007, FAO identified a number of possible causes contributing to the global price rise: Low levels of world cereals stocks; crop failures in major exporting countries; rapidly growing demand for agricultural commodities for bio-fuels and rising oil prices.

As the price strengthening accelerated, several other factors emerged to reinforce the upheaval; most importantly, governments export restrictions, a weakening US dollar and a growing appetite by speculators and index funds for wider commodity portfolio investments on the back of enormous global excess liquidity. What made the 2007/2008 price spike exceptional was the concurrence of so many factors culminating in an unprecedented price rally and the fueling of volatility,” stated the FAO report.

The FAO said that while the initial outlook for cereals points to a decline in world output compared to 2008, production in 2009 is still expected to be about 4 percent higher than in 2007. World meat prices were an average 8 percent lower in the first 10 m0nths of 2009 than at the same period last year. Meanwhile, dairy prices are increasing again, and there have also been price increases over several months for fish and fishery products, demand for which had suffered  due to the global economic slowdown.

To read the global market analysis food outlook from the FAO click here.