Global Policy Forum

By G. Chandrashekhar

Prices in November touched a level not seen in a decade. Global expenditure on imported foodstuffs in 2006 could reach a historic $374 billion

2006 is drawing to a close. The year will be remembered for a strident rise in the prices of cereals, particularly wheat and corn (maize). By November, prices had reached levels not seen for a decade. This has serious implications for food importing developing countries. Relief is unlikely anytime soon.

Poor Harvests

Poor harvests in key producing countries and fast growing demand for biofuel production have been the main drivers of the grain markets, while supply constraints have dominated the rice economy, the Food and Agriculture Organisation (FAO) said in its latest Food Outlook.

Global expenditure on imported foodstuffs in 2006 could reach a historic high of $374 billion, over 2 per cent more than the previous year's level, while import bills for developing countries are anticipated to rise by almost 5 per cent from 2005, mainly as a result of price increases rather than increase in actual volumes of food imports, the report pointed out.

The FAO anticipates that many countries will reduce food purchases mainly because of higher world prices. There is also danger that poor countries may be forced to cut back on expensive staple imports to meet high-cost, yet critical, energy (fossil fuel) needs.

Impact on Other Commodities

The strength of price action in the cereal market has not spared other commodity markets. For instance, prices across the oilseeds complex have been on the rise, although not as sharp as in cereals. This can potentially trigger a shift in acreage from less profitable oilseeds to more profitable cereal crops and, in the process, create imbalances in the vegetable oil market next year. Demand for vegetable oils has been rising faster than production increases because of large-scale diversion for non-food use, especially biodiesel production.

The FAO has also noted that the strength of the grain markets has had a ripple effect on the meat and dairy sectors via feed linkages. For instance, expectations of high feed costs are threatening to postpone a recovery in livestock and meat production. This comes at a time when more pondered consumer reactions to animal health scares have raised the prospect of a demand rebound.

Specifically, global wheat output in 2006 stands at about 592 million tonnes down a whopping 33 mt or 5.3 per cent from the previous year. Good prospects for wheat crop for 2007 are, of course, a silver lining. Coarse grains output too is down 2.1 per cent to 981 mt in the current year. The current high prices are likely to lead to expanded acreage for corn next year and higher production. But continued robust demand for bioethanol is unlikely to bring any notable relief in prices.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.