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Price Spikes Raise Specter of Another Food Crisis

Washington - While global food prices declined for the first half of this year

Washington – While global food prices declined for the first half of this year, they have spiked in recent months, according to a new World Bank publication, and this volatility could in turn push up the local food prices of the world’s poorest and most malnourished countries.

The Bank’s grain price index had declined by 16 percent over the first six months of 2010 before rising that same amount between mid-June and August.

For now, the price increases have had mixed effects on domestic prices. In the four months leading up to July, wheat prices rose 27 percent in Afghanistan – after those prices had declined steadily over the past year. In eastern and southern Africa, though, the price of the main staple, maize, has continued to decline this summer. In Kenya, for instance, maize prices are at less than half their Dec. 2009 levels, with smaller recent declines in Tanzania, Uganda and elsewhere.

“These examples show that local food prices are often determined by domestic or regional factors unrelated to global commodity market trends,” the World Bank report says. Overall, out of the 42 countries for which the Bank has data on the price of their staple food until July, the price of that staple was lower in July than it was in April in over half of them.

Fears of a repeat of the 2007-08 food crisis might therefore be overblown, at least for some parts of the world. The Bank notes that the price spikes were fueled by projections of low wheat production by powerhouse producers Russia, Ukraine, Kazakhstan and Canada.

Russia had even announced a ban on wheat exports due to expectations this summer’s heat wave and drought would result in its crop being a third less than last year.

But the Bank and other institutions have pointed out that even though commodity markets have been fearful about grain shortages, and thus have driven up prices, there are “ample world wheat stocks” and good prospects for the wheat output of the U.S., EU and other producers.

The Washington-based International Food Policy Research Institute (IFPRI) notes that today’s food situation is different than the 2007-08 crisis in a number of ways.

“We are able to cope with lost production better than we did two years ago,” Maximo Torero, director of IFPRI’s Markets, Trade and Institutions Division, said last week. He noted that both wheat production and wheat stocks are higher this year than during that crisis.

“The United States alone holds reserves of 26 million metric tonnes – more than enough to cover the combined estimated loss of 18 million metric tonnes from Russia, Ukraine, Kazakhstan and the European Union,” he said.

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How much grain exists in the world’s stocks and whether global panic is warranted or not, though, might be somewhat beside the point. The Bank publication, called Food Price Watch, is meant to “highlight the fact that irrespective of what global commodity prices are doing…there are always countries where food prices are rising rapidly” due to civil war, droughts or any number of reasons, says Hassan Zaman, a lead economist at the Bank’s Poverty Reduction and Equity group, which produces the publication.

“Even when global prices were going down, there were countries where they were rising,” he said.

But with the recent upward trend in the price of wheat and other staples, not even those global prices are going down now. The Bank reports that wheat prices rose by 56 percent between June and August. More troubling, though, is that those rises have had spillover effects on other staple foods.

With more expensive wheat, demand for substitutes like sorghum and maize has increased, leading to prices for those grains rising globally by eight and seven percent respectively between July and August. Rice prices, likewise, rose 10 percent in August after having declined 20 percent since January.

Demand is not the only factor here, of course. The U.S. maize harvest, by far the world’s largest, had been projected to be phenomenal this year, but in recent weeks those projections have been significantly lowered – even as demand for exported U.S. maize is rising. And the floods engulfing an Italy-sized swath of Pakistan are expected to mean its rice exports will be 35 percent lower than last year’s. In June, pre-flood, a report by the U.N. Food and Agriculture Organisation (FAO) had anticipated record levels of rice exports from Pakistan.

The Bank report highlights the risk that these global price spikes hold for countries where food prices were already rising, Zaman told IPS. “There is even more of a risk that these prices will go up in vulnerable countries, not only due to domestic problems but now due to global price rises as well.”

For now, though, that is still just a risk. Global price changes take time to reach domestic markets, and in that time those prices might turn around.

“In order for world wheat prices to drive up the price of bread, they would have to stay high for a prolonged period. In 2007, prices rose continuously for months on end before hitting consumers. Today, prices are volatile,” says Torero.

He says the riots in Mozambique that resulted from a 30 percent rise in bread prices earlier this month were not related to rising global wheat prices but to a rising cost of imports from South Africa, a key trading partner.

The World Bank writes that “it is too early to make conclusive statements on the impact of the very recent global wheat price spikes at the na¬tional and household level.”

The FAO has likewise stated that there does not currently appear to be a crisis, but that it is concerned about the amount of volatility in food markets.

And that volatility might bode ill for progress toward overcoming challenges like those laid out in the Millennium Development Goals being discussed at the U.N. this week.

“These recent global staple price increases raise the risk of domestic food price spikes in low income countries and its consequent impacts on poverty, hunger and oth¬er human development goals,” according to the Bank.

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