Panos Konandreas The last two years are characterised by a surge in agricultural commodity prices. Prices rose sharply in 2006 and, in some cases, are soaring at an even faster pace this year. The FAO food price index rose by 9% in 2006 compared to the previous year. In September 2007 it stood at roughly 37% higher than the same time in 2006. The surge in prices has been led primarily by dairy and grains, but prices of other food commodities, with the exception of sugar, have also increased significantly. High price events, like low price events, are not rare occurrences in agricultural markets. Often high prices tend to be short lived compared to low prices, which persist for longer periods. What distinguishes the current situation is how widespread this phenomenon is, affecting not just some but nearly all major food and feed commodities. The sustained increase in primary food commodity prices contributed to a rise in retail prices of such basic foods as bread, pasta, milk and meat. There is now a widespread and commonly shared concern about food price inflation and food riots have been witnessed in several countries. For most cereals, supplies are much tighter this year than in previous years while, in addition to rising demand for food and feed, there is an increasing use of cereals for industrial use. Stocks, which were already low at the start of the season, are likely to remain equally low because global cereal production would only be sufficient to meet expected world utilization. Because of the high and volatile prices, coupled with soaring freight rates, trade is expected to contract this year. However, in spite of lower import volumes, many countries are expected to pay substantially more for food imports compared to previous years. As reported in the November issue of the FAO publication Food Outlook, the global value of imported foodstuffs in 2007 is expected to reach US$ 745 billion, or 21% more than the previous year and the highest level on record . Developing countries as a whole could face an increase of over 25%. The sustained rise in food import bills for the most vulnerable among the developing countries is worrisome. FAO estimates that in 2007 the cost of the food basket imported by the Least Developed Countries (LDCs) and the Net-Food Importing Developing Countries (NFIDCs) could be more than twice the level of 2000. Four factors are responsible for this large increase (see Table). The first is the increase in the volume of imported foodstuffs. The combined volume of cereal imports by LDCs and NFIDCs in the marketing year 2007/08 is forecast by FAO to be about 15% greater than the average of the 1998/99 to 2000/01 period. The second factor is the declining volumes of food aid. The combined cereal food aid of the LDCs and NFIDCs in 2007/08 is forecast to be 45% lower than eight years earlier (1998/99 to 2000/01). Food aid would account for 4.6% of their total cereal imports, compared to nearly 10% eight years earlier. The third factor, as already mentioned, is the large increase in the world market price of cereals. For example, the July-October 2007 average price of US no.2 hard winter wheat was 154% higher than eight years earlier. Finally, what also affects the cost of food imports is the huge increase in freight rates. The July-October 2007 average ocean freight rate from U.S. Gulf ports to key import destinations was more than 400% higher than the level of eight years earlier. Among these four factors, the first, i.e. increasing volumes of cereal imports, is due to the inability of domestic production to keep pace with increasing domestic demand. However, on average during recent years, the effect of this factor on cereal import bills has been modest compared to the effects of the other three factors identified (i.e. food aid, world prices and freight rates). What is also important to note is that the latter factors are external to the countries concerned and well beyond their control. The increased burden of importing foodstuffs from the world market due to the higher cost of such imports is not the only constrain faced by many poor countries to attain food security. Weather-related reduced cereal harvests, and wars and civil strife in several countries, particularly in Africa, could result in severe food shortages in the 2007/08 marketing year and would require emergency food assistance. Among the countries facing reduced cereal harvests, the most seriously affected are Zimbabwe, Swaziland and Lesotho in Africa and the Democratic People’s Republic of Korea in Asia. Among the countries affected by war and civil strife, the most seriously affected are Somalia, Ethiopia and the Darfur region of Sudan. In Zimbabwe, a severe drought coupled with shortages of agricultural inputs, resulted in a decline of more than 40% in the 2007 cereal production. An FAO/WFP Mission estimated that 4.1 million people are in need of emergency food aid and would require 352,000 tonnes of cereals in the form of food aid in the marketing year 2007/08 (May/April). Against this requirement, 206,000 tonnes of food aid have been received/pledged by early November. Similarly, because of a sharply drought-reduced 2007 cereal crop in Swaziland, 407,000 people are in need of 40,000 tonnes of cereal food aid, of which 10,000 have been already received/pledged. Multiple years of drought in Lesotho have left 401,000 persons in need of 40,000 tonnes of emergency food aid in marketing year 2007/08 (April/March) of which again 10,000 tonnes have been already received/pledged. In Somalia, renewed armed conflict and civil insecurity in Mogadishu since March 2007 has resulted in thousands of people fleeing the capital. This, combined with the worst main cereal crop season in thirteen years, has led to a severe humanitarian crisis. The number of people needing food aid has increased in recent months and is currently estimated at 1.5 million persons. Nearly one-fifth of these people are classified as requiring life saving interventions. Emergency food aid is also needed for 600,000 persons in conflict-affected areas of neighbouring Ethiopia and for additional large numbers of people affected by a reduced harvest in the 2007 main or secondary crop season. In Sudan, despite a good 2007 cereal production at national level, substantial amounts of food aid are needed in the Darfur region affected by prolonged civil conflict. In the Democratic People’s Republic of Korea, food aid needs in 2007/08 are estimated at over 900,000 tonnes of cereals reflecting structural economic constraints, coupled with a reduced 2007 cereal output due to unprecedented torrential rains last August. Of course more countries are facing food problems than those mentioned here. More detailed and up-to-date information will be available in the December issue of the FAO Crop Prospects and Food Situation Report, to be released shortly. This report is the other major publication, besides Food Outlook, produced by the FAO’s Global Information and Early System (GIEWS). FAO and WFP continue to take steps to improve the methodology of assessing food aid needs. Both organizations are collaborating closely in strengthening emergency needs assessment capacity and on improved methodologies used in Crop and Food Supply Assessment Missions. The new Crop and Food Security Assessment Guidelines (to be published soon), jointly elaborated by FAO and WFP, place greater emphasis, inter alia, on: • better use of remote sensing data at both national and regional levels,
Source: FAO |
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