February 1, 2011

Algeria continues to import grains despite high prices

Algeria and other wheat importers carried on to purchase grains even as prices rise, signifying that cereals will be costly in time, an economist at the United Nations' Food and Agriculture Organization (FAO) says.

"Demand is not rationing even though prices remain high, and this is going to support prices for some time," Abdolreza Abbassian at the Rome-based FAO said in an interview last week. "Countries are getting concerned as prices are staying high."

Russia last year banned cereal exports after the country's worst drought in at least half a century destroyed crops and cut 2010 production, sparking a surge in grain prices across the world. Ukraine also restricted exports. Paris-traded milling wheat futures have more than doubled in the past 12 months.

Governments in Africa have faced protests amid rising costs and high unemployment, and a revolt toppled Tunisia's leader.

"There's also a question of instability in some countries, which could result in some countries purchasing more, and therefore adding more to the demand side," Abbassian said.

A surge in food and energy costs is stoking inflation in emerging markets and causing riots that may topple governments, Nouriel Roubini, the New York University economist who predicted the financial crisis, said Wednesday (Jan 26).

Algeria agreed to buy 800,000 tonnes of wheat and ordered the state-run grain agency to speed up imports. The country may be building grain stocks to secure future supply, and Saudi Arabia is considering the same strategy, according to Abbassian.

"This is something new we're seeing, anticipating 2011-2012 may be worse than 2010-2011, especially now that North Africa is a little more politically unstable," the economist said. "Buying and stocking may be the easiest thing to do even if it is the most costly and expensive thing to do, so we may see more of this."

The direction of grain prices will depend on the 2011 harvest, he added.

"By spring we'll have a better idea about the Northern Hemisphere wheat crop," Abbassian said, saying that wouldn't be before April.