Potential grows for food crisis as prices surge: United Nations

The world could face a new food crisis of the kind seen in 2007/08 if countries resort to export bans, the UN's food agency warned on Thursday, after reporting a surge in global food prices due to a drought-fuelled grain price rally.

A mix of high oil prices, growing use of biofuels, bad weather, restrictive export policies and soaring grain futures markets pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti.

Concern about extreme hot and dry weather in the US Midwest sent corn and soybean prices to record highs last month, driving overall food prices higher again and reversing the Food and Agriculture Organisation's expectations for steady declines this year.

"There is a potential for a situation to develop like we had back in 2007/08," FAO's senior economist and grain analyst Abdolreza Abbassian told Reuters.

"There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn't happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible."

Grain markets have been boosted by speculation that Black Sea grain producers, particularly Russia might impose export restrictions after a drought there hit crops.

Markets drew a little comfort from official Russian comments on Wednesday that the country saw no grounds to ban grain exports this year but did not rule out protective export tariffs after the end of the 2012 calendar year.

The FAO Food Price Index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 213 points in July against 201 points in June, the FAO said in its monthly index update.

The rise followed three months of declines. Although below a peak of 238 points in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa, the index is still higher now than during the food price crisis in 2007/08.

Higher food prices mean higher import bills for the poorest countries, which do not produce enough food domestically.

Charity Oxfam said that the surge in grain prices could drag millions of people around the world into conditions of hunger and malnourishment, in addition to nearly one billion who are already too poor to feed themselves.

Abbassian said the situation was still quite different from 2007/08, when crude oil prices were at record levels, adding to farmers' costs.

Abundant supplies of rice and sluggish economic growth should also ease the upward pressure on prices, but a lot will depend on how the weather develops for U.S. crops and how much demand will be rationed in coming months, he said.

The Rome-based food agency usually does not release the food price index this month but it has broken with tradition due to the exceptional market situation.

It did not update its supply and demand outlook for cereals on Thursday as it does during a normal release. The US Department of Agriculture (USDA) will publish its August crop production and supply/demand report on Friday.

Copyright @ Thomson Reuters 2012