World Food Prices Jump, But Likely Not For Long

World Food Prices Jump, But Likely Not For Long

A laborer in India takes a break while harvesting wheat in the northern state of Punjab.

By Charles Recknagel

April 26, 2012

Alittle more than a year ago, food prices reached a historic peak before falling again. Few people have forgotten the experience and no one wants to be caught unprepared should it happen again. 

That is why a new report by the World Bank is receiving wide attention.

The Washington-based development bank announced that its most recent look at the level of global food prices shows they have risen 8 percent since the start of this year.

“Right now, we have a level of prices 8 percent higher than in December 2011. And currently they are only 6 percent below the historical peak in February 2011,” Jose Cuesta, senior economist of the World Bank, told reporters.

According to the bank’s quarterly report, prices increased for all staples except rice. The global price of wheat rose by 6 percent, sugar by 5 percent.

Cuesta said the higher prices were driven mostly by rising energy costs and adverse weather during the first months of the year.

“We have seen these increases globally, across regions, and the reasons for those increases are basically the increase of crude-oil prices, as well as a strong demand from food importers in Asia, a weak dollar, and bad weather conditions in Europe and the Southern Hemisphere,” he said.

Notes Of Optimism

But while the World Bank report is sobering, the report also contained some optimism.

It noted that the production outlook for food crops is strong for the rest of this year and for 2013 and that could keep the upward pressure on food prices in check.

The favorable outlooks come from the fact that food producers globally increased their production of major crops in response to the rise in food prices in late 2010 and early 2011.

Concepcion Calpe, a senior economist at the UN’s Food and Agricultural Organization in Rome, says there are other reasons, too, to expect food prices to stay where they are or decline.

One is the weather, which has been harsh for food growers in many parts of the world in recent years but is now predicted to be more favorable.

“We expect that there will be less unexpected [weather] events, and this is mainly relying on the meteorological agencies that are predicting that this abnormal climate phenomenon that we call La Nina and El Nino, which has been very important in the past few years in influencing production of crops, should be — this year in 2012 — less prominent,” Calpe says.

Larger Harvests, Lower Prices

La Nina and El Nino are names for two opposite climate patterns that originate with cooling or warming in the world’s oceans and have worldwide effects. La Nina brings drought and abnormally harsh winters, while El Nino brings flooding and mild winters. Both seriously disrupt crop growth.

Calpe says that if the weather is better as predicted this year, larger harvests should bring down prices. And that would be even if the cost of energy — used at every stage of food production — remains high.

However, the FAO expert says, no one who tracks food prices can ever be sanguine about the future.

While both the World Bank and the FAO are optimistic that production outlooks are strong for 2012-13, they are also aware that the world does not have abundant stockpiles of food to fall back on if the good weather predictions for the coming months prove wrong.

“There is still a lot of danger in the international market because the reserves that are held in the world are probably at very low levels, lower than they should be,” Calpe says. “So that means that if there is an unexpected event, there would be very little buffer to smooth the impact of bad crops on the final prices that consumers would have to pay.”

Reason enough for the World Bank to issue its look at food price trends over the first months of this year with this caution.

“If the current forecasts for increased food production do not materialize,” the report says, “global food prices could reach higher levels, underscoring the need to remain very vigilant.”

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