Bloomberg News

Global Food Prices Seen Declining as Demand Growth Slows

March 15, 2012

World food prices will drop this year as increases in unemployment in developing and developed countries slows growth in demand, the United Nations said.

“We have started to see a decline in food prices,” Jose Graziano da Silva, director general of the UN’s Food and Agriculture Organization, said at a conference in Hanoi today.

World economic expansion will slow to 3.3 percent this year from 3.8 percent in 2011, according to the International Monetary Fund. In China, Premier Wen Jiabao has announced a growth target of 7.5 percent for this year, down from 8 percent in the past seven years. Global harvests of wheat and rice, the world’s two most-consumed food grains, are headed for records as farmers boost planting to benefit from rising prices.

“We saw acreage up across almost all crops, while we’ve seen efforts at expanding livestock herds,” adding to food supply and pushing prices lower, Michael Creed, an agribusiness economist at National Australia Bank Ltd., said by phone from Melbourne. The high prices last year certainly produced a response from farmers, he said.

While global food prices climbed for a second consecutive month in February on higher costs for cereals, cooking oils and sugar, they are down 9.5 percent from a record in February 2011. An FAO index of 55 food items increased 1.2 percent to 215.3 points from 212.8 points in January, the agency said March 8.

Price Volatility

Prices of rice, wheat and corn soared to records in 2008 on global shortages, prompting export limits by some countries and spurring concern that a food crisis was looming. Riots occurred from Haiti to Egypt.

“The FAO Index will be lower” by the end of the year, Da Silva said. Consumer prices have shown signs of retreating with inflation in China, the world’s second-largest economy, easing to the slowest pace in 20 months, data showed this month.

Wheat prices declined 29 percent from their high in February 2011 and traded at $6.475 a bushel on the Chicago Board of Trade today. Rice prices tumbled 25 percent from a peak in September to $13.94 per 100 pounds.

Rice Costs

In Asia-Pacific, food price volatility remains a “threat” with retail rice costs in many countries 10 percent to 30 percent higher than in 2011, he said. A number of countries are close to their limit for agricultural expansion, he said. “Land degradation also affects productivity in Asia and Pacific, a region that is increasingly threatened by water scarcity.”

The region is home to 62 percent of the world’s 925 million undernourished people, Da Silva said. Undernourishment fell from 20 percent to 15 percent in the 16 years to 2006-2008, he said.

Global food output must rise 70 percent by 2050 to feed a world population expected to grow to 9 billion from 7 billion and as increasingly wealthy consumers in developing economies eat more meat, according to FAO.

To contact the reporter on this story: Nick Heath in Hanoi at nheath2@bloomberg.net

To contact the editor responsible for this story: Ovais Subhani at osubhani@bloomberg.net


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