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Global food costs hit a record in January

World food prices hit a record in January and recent catastrophic weather around the globe could put yet more pressure on the cost of food.
/ Source: Reuters

World food prices hit a record in January and recent catastrophic weather around the globe could put yet more pressure on the cost of food, an issue that has already helped spark protests across the Middle East.

Up for the seventh month in a row, the closely watched Food and Agriculture Organization Food Price Index on Thursday touched its highest since records began in 1990, and topped the peak of 224.1 in June 2008, during the food crisis of 2007/08.

"The new figures clearly show that the upward pressure on world food prices is not abating. These high prices are likely to persist in the months to come," FAO economist and grains expert Abdolreza Abbassian said in a statement.

Surging food prices have come back into the spotlight after they helped fuel the discontent that toppled Tunisia's president in January and have spilled over to Egypt and Jordan, raising expectations other countries in the region would secure grain stocks to reassure their populations.

World Bank President Robert Zoellick urged global leaders to "put food first" and wake up to the need to curb increased price volatility.

"We are going to be facing a broader trend of increasing commodity prices, including food commodity prices," he told Reuters in an interview.

Supply is key
A series of weather events hitting key crops is likely to keep up the pressure on food prices as a massive cyclone batters Australia, a major winter storm ravages U.S. crop belts and flooding hits key commodity producer Malaysia.

Drought in the Black Sea last year, heavy rains in Australia, dry weather in Argentina and anticipation of a spike in demand after unrest in north Africa and the Middle East has already pushed the price of wheat to its highest in 2-1/2 years.

The FAO's Abbassian pinpointed crop conditions.

"It is the supply situation. It is not the time when we get additional supplies from anywhere," he told Reuters.

"Supply is not going to look any better than it is now until we know what is happening (with crops in major producing countries) later on in the year," he said.

A mix of high oil and fuel prices, growing use of biofuels, bad weather and soaring futures markets pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti.

Cameroon on Thursday said it had created a body to buy and regulate the price of basic food imports, a move to avoid a repeat of price increases which led to 2008 riots in which 100 people were killed by the African nation's security forces.

Economists in Europe picked up on the threat to economies from surging food inflation.

Janis Huebner, economist at Germany's DekaBank said inflation partly fueled by increasing food prices could in turn trigger interest rate rises in several countries this year.

"This could mean a slowing down of growth in the countries which raise their interest rates," he said. "This could involve Asian countries and other regions, this would somewhat brake growth but I do not expect a hard landing."

National Australia Bank agribusiness economist Michael Creed said food markets may take a while to regain equilibrium.

"The broadbased nature of what crops have been wiped out over the past year means that it's going to take a while to actually rebuild and get production back in line with consumption," he said.

White sugar futures hit a record high and raw sugar futures rose to their highest in more than 30 years on fears of the damage Cyclone Yasi would bring to the Australian cane crop.

The worst winter storm for decades in the United States drove wheat futures to the highest in nearly 2-1/2 years, and Malaysian palm oil prices are at 3-year highs as flooding hit crops.

Stock building
Some countries, particularly where food prices loom large in household budgets, have been building up food stocks to try to contain prices — and to limit the political and social fallout.

In the run-up to the 2007/2008 food price crisis, the World Bank estimated that some 870 million people in developing countries were hungry or malnourished. The FAO estimates that number has increased to 925 million.

"2008 should have been a wake-up call, but I'm not yet sure all the countries in the world that we need to support this have woken up to it," the World Bank's Zoellick said.

Indonesia, Southeast Asia's biggest economy, last week bought 820,000 tonnes of rice, lifting rice prices -- although rice is one commodity that remains well below its 2008 prices. It has also suspended import duties on rice, soybeans and wheat.

Algeria last week said it had bought almost a million tonnes of wheat, bringing its bread wheat purchases to at least 1.75 million since the start of January, and ordered an urgent speeding up of grain imports, a move aimed at building stocks.

"Some of the demand story is centered around high food prices (that) then tend to lead to hoarding by a number of countries into their strategic reserves," said Wayne Gordon, a grains analyst for Rabobank in Sydney.

"So not only are they purchasing for current consumption, but they are also trying to build up strategic reserves, which basically are a bit of a double-barreled demand event."