August 18, 2011

 

Food price index approaches a three year high

 

Food prices worldwide nearly reached three-year highs in July and supplies were low, putting on pressure on the poor, the World Bank said Monday (Aug 15).

 

The World Bank Food Price index increased 33% in July from a year-ago and stayed close to 2008 peak levels, with large rises in the prices for corn and sugar.

 

"Persistently high food prices and low food stocks indicate that we're still in the danger zone, with the most vulnerable people the least able to cope," said World Bank President Robert Zoellick.

 

High food and energy prices have stoked inflation pressures around the globe, but the problem has been more acute in developing nations.

 

Although food prices are moderating in most advanced countries, uncertainties about the global economy and the political situation in the Middle East and North Africa mean oil prices likely will remain volatile, keeping inflation on the radar.

 

While overall food supply has improved since April - mainly because of good wheat harvests in the US and Europe and better corn yields in Argentina and Brazil - global stocks remained "alarmingly" low, the World Bank said.

 

Global output of grains in 2011/12 is projected to be 3% higher than the estimated output for 2010/11.

 

But the stocks-to-use ratio for corn currently stands at about 13%, the smallest since the early 1970s. Wheat and rice stocks also remain well below their late 1990s and early 2000 levels.

 

"Coupled with the fact that the realization of the forecast yields is itself contingent on benign weather conditions in the major exporting countries, the low stock environment has created a situation in which even small shortfalls in yields can have amplified effects on prices," the World Bank said.

 

The price of corn was up 84% in July from a year ago and sugar increased 62%.

 

The World Bank said the move into production for biofuels was also driving up the price of corn, noting that in the first four months of 2011, US corn demand for ethanol production rose 8% from the same period last year.

 

"Given that sugar and vegetable oils together account for roughly 50% of the World Bank's food price index, volatility in these prices is likely to have unexpected effects on food prices in the months ahead," the World Bank said.