Food-price inflation concerns for policy makers are set to persist even as rice declines and wheat trades below this year’s peak, according to the United Nations, which said that importers are still paying more than a year ago.
Another year of bumper wheat and rice harvests, as well as a continued surplus in corn, is needed to bring stockpiles back to “healthy” levels and reduce inflation concerns, Abdolreza Abbassian, senior economist at the UN Food & Agriculture Organization, said in an interview in Singapore today.
Costlier food may worsen the lives of the 1.1 billion the World Bank says live on less than $1 a day, adding to pressure on central banks to raise interest rates even amid increased concerns that the global economy may slip back into recession. Global food prices reached a record in February.
“Food security is the number-one priority of governments, followed by food inflation,” Amit Gulrajani, general manager for rice trading and shipping at Olam International Ltd. (OLAM), said at a conference in Singapore today. Olam, based in the city- state, is one of the world’s three biggest rice shippers.
The World Food Price Index, a 55-item gauge compiled by the Rome-based FAO, rallied 26 percent in the year to August. Wheat in Chicago, which peaked at $9.1675 per bushel on Feb. 14, has shed 14 percent this year and traded at $6.80 at 1:10 p.m. Rice, trading at $16.86 per 100 pounds, has lost 9.1 percent since reaching the highest level since 2008 earlier this month.
While the World Food Price Index may decline for a third month in September, the gauge will remain above last year’s level and provide no relief for food-deficit countries that rely on imports for supplies, Abbassian said.
French President Nicolas Sarkozy warned in June that the world must take action to avoid another food crisis, saying policy makers risked making this a “century of hunger” unless there were new rules on global supplies.
Food prices will remain higher in the next decade than the past 10 years as farm production slows and demand increases, the OECD and the FAO said in a joint report in June. Global output is forecast to grow an average 1.7 percent a year through 2020, compared with 2.6 percent in the previous decade, they said in their annual Agricultural Outlook report.
Food inflation “has replaced gasoline price as the most important household expense concern,” William Simon, chief executive officer of Wal-Mart Stores Inc., the world’s largest retailer, said in an earnings conference call on Aug. 16.
Global inventories of cereals including rice, wheat and corn will meet about 20.8 percent of demand, or 76 days, in the 2011-2012 season, the smallest level of coverage since the 2007- 2008 season, the FAO said in a Sept. 8 report.
Tightening corn supply, which the FAO described as a “cause for concern,” was already reflected in high prices, the agency said on Sept. 8. Corn futures in Chicago traded at $6.9725 per bushel today, 37 percent higher than a year ago.
Rice prices in Chicago gained in July and August after a new Thai government said that it planned to pay above-market rates for supplies from farmers to boost rural incomes. Thailand is the world’s largest exporter of the grain.
The rice-buying policy may “create problems” for the government as it will inflate the nation’s stockpiles and the state may be unable to sell them on the open market without incurring losses, Abbassian said at the Singapore conference.