Soaring food prices raise new crisis fears


The United Nations Food and Agriculture Organisation (FAO) last week warned that food prices for basic commodities hit record highs last month, fuelling fears of inflation, protectionism, unrest and reduced demand from emerging economies. 

According to the UN’s latest food price index, December 2010 prices overtook 2008 levels when spikes in prices triggered violent protests in Latin America, Africa and Asia – demonstrating the immediate impact that basic commodity price rises have on the world's poorest populations.

The UN index, which tracks the wholesale cost of several agricultural commodities, including wheat, corn, rice, oilseeds, dairy products, sugar and meats, rose by 32% in the second half of 2010, up from 167 in July to 215 in December.

With droughts and floods hitting harvests across the world, forecasters predict further food price increases in 2011.

CAP reform to address EU supply issues

The European Commission says that there is no single cause and no simple explanation for the increase in food prices and believes the hikes are driven by factors such as increased global demand, bad harvests in exporting countries, export bans and speculation.

EU Agriculture Commissioner Dacian Ciolo? said the food price increases "show the importance of a strong Common Agricultural Policy (CAP)" and suggest that one of the principal objectives of discussions on the post-2013 CAP should be "viable food production".

"The provision of safe and sufficient food supplies, in the context of growing global demand, economic crisis and much greater market volatility is fundamental and will be one of the main elements the Commission will consider when making its proposals for the future CAP in the middle of this year," he added.

G20 to discuss price concerns

The Group of 20 leading economies, which meets in Paris on 27-28 January, is set to discuss ways to tackle soaring food prices through global cooperation, in a drive to avoid repeat of the 2008 crisis.

Policymakers fear that if no action is taken, rising food prices will fuel inflation, protectionism and unrest, triggering social and economic instability.

It also fears that rising food prices could set back the recovery from the financial crisis by slowing consumer demand in fast-growing emerging economies, which are leading the global revival.    

EU Farm Commissioner Ciolo? welcomed a decision by France, which is currently at the helm of the G20, to put price volatility on the agenda of the Paris summit. Indeed, the commissioner himself intends to actively participate in these discussions.

Riots in Algeria, Tunisia

Publication of the new UN figures coincided with angry young Algerians' decision to take to the streets last week in protest against unemployment and inflation. Rioting began on Wednesday, triggered by a sharp rise in the prices of basic foodstuffs like milk, sugar and flour.

According to press reports, the situation returned to normal on Sunday after the government promised it would suspend customs duties and value added tax on imports of sugar and cooking oil to reduce the cost of basic foodstuffs.

An unprecedented wave of protests is also taking place in Tunisia, sparked by high food prices and unemployment.

The European Crop Protection Association (ECPA) notes that as the world's biggest food importer, Europe has enormous influence on global food prices and distribution. It also warns that dependence on imports makes Europe highly vulnerable to price shocks.

ECPA Director-General Friedhelm Schmider said the EU "should be looking to its own policies, regulations and incentives to protect Europeans from high food prices. The key will be to promote productive, efficient agriculture here in Europe and reduce dependency on imports for crops that can be grown here. This is true food security".

Free markets rather than protectionist polices are the solution to volatile food prices and the G20 should take steps to prioritize the provision of food for the poor, World Bank President Robert Zoellick said.

"The answer to food price volatility is not to prosecute or block markets, but to use them better," Zoellick wrote in an opinion piece in Thursday's Financial Times urging G20 leaders to put access to food at the top of its agenda.

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