UN report plays down food price speculators

The Globe and Mail

If food is heaped up everywhere, can the speculative inflows of managed money take some or all of the blame for the price rises?

Why are food prices soaring when there is plenty of food around?

The United Nations Food and Agriculture Organization (FAO) in Rome has some answers. But it plays down the importance of the one factor — speculation — that seems to be playing a big role in the price hikes.

The FAO on Wednesday released its flagship “Food Outlook Report,” a biannual publication larded with stats and analysis that examines short term-term trends. To its credit, the agency has been warning for half a year that prices were on a roll and might be headed back to the “crisis” levels of 2007-08, which triggered food riots in dozens of poor countries as wheat, rice, oilseeds and other items became unaffordable to large segments of the population.

Of course, the best cure for high prices, as they say, is high prices, and prices duly came down. Then the financial crisis and the recession struck, and they came down again. They reversed course dramatically in the summer, thanks to a sharp fall in Russian wheat production, followed by a wheat export ban; slowing exports from other big wheat producers, notably Ukraine; falling maize (corn) yields in the United States; the sinking dollar; and horrendous food inflation in China, which in October climbed at a 10 per cent rate.

As a result, overall prices are close to their June, 2008, record high, and could go higher, depending on the success of next planting season, the replenishment of stocks (or lack thereof) and, of course, the weather.

That is not to say a new food crisis is imminent. The FAO also points out the good news — food still seems in ample supply. For example, wheat stocks are forecast to fall 10 per cent but will still be 25 per cent higher than 2008’s level. While the global rice harvest is being scaled back somewhat, it is still forecast to come in at a record, “sufficient to cover world consumption but without the need to draw down reserves,” the FAO says. Oilseeds output will remain close to last season’s record level. And so on.

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