Global food prices that touched an elevated level in August last year boasted some signs of stability between June to October this year, recording a drop of 12 percent year on year, says a recently released Food Price Watch by the World Bank.
In August, last year, the food prices, particularly grain prices went very close to their all-time high level of 2008 and 10 percent above the record-high prices of February 2011. Within grains: wheat, maize and soybean proved to be the major culprits whose prices went up by 50 percent, 45 percent and 30 percent, respectively, since mid-June 2012. The report highlights that the price-hike was driven by the adverse drought conditions in the US, the major grain producing and exporting country.
Considering the highs of last year, does the subdued price-level this year warrant a sigh of relief? Well, bearing in mind the price fundamentals, the answer to this question appears to be “NO”.
First, because the food price index, despite considerable decline, remains close to its peak level. Besides, unpredictable weather conditions and erratic currency fluctuations also hint that the price reductions are fragile and alarm a rebound soon again.
This year, while the prices of maize and soybean have begun ticking down, wheat price hasn’t yet missed its upward journey.
Improved maize harvest in the United States, EU, Black Sea and China has contributed to plopping down prices in recent months. Besides supply glut, the US Environmental Protection Agency has recently proposed a cutback in the mandated volumes of maize-based ethanol in the United States for 2014 which has also lowered the demand.
The stable prices of soybean came on the back of impressive productivity achievements of the Brazilian cerrado which has been transformed into the world’s powerhouse of soybean production.
Conversely, the continued wheat price-hike despite production recoveries among EU and Black Sea producers is attributable to high wheat demand from China, weak US dollar and concerns over unfavourable weather conditions in Black Sea countries, South America and India.
Rice prices are also expected to rear its head owing to droughts in central provinces of China and excessive rains in northeastern and southern provinces. A recent hurricane followed by heavy rains is also affecting rice harvests in India.
The idea is that the short-term food-price stability doesn’t imply that policy-makers should sit back and relax. The 842 million currently hungry people shout for a sustained solution to unpredictable agricultural productivity that renders food unaffordable to them.
Bearing in mind the success story of vast farms in Brazil cerrado that stabilized soybean prices, one long-term solution could be super farming (farms typically exceeding 10,000 hectares). China and Singapore are also projected to develop an extensive 145,000 hectares “food zone” in the northeastern province of Jilin, China. Similar projects are also reported to kick-off in Indonesia.
While super farming can’t be guaranteed to rule-out the menace of unprecedented food price-hike, it will at least make a dent in it, besides producing employment and poverty reduction and efficiency gains as by-products.
PRICE CHANGE OF KEY COMMODITIES
Commodities Oct-13 (YoY Chg)
Rice (Thai, 5 %) -21%
Wheat (US, HRV) -9%
Sugar (World) -8%
Soybean Oil -16%
Source: WB, DECPG