Food prices have soared to record levels around the world, raising fears that poor countries could face a crisis similar to the one that led to rioting and rationing two years ago.
"We are entering a danger territory," Abdolreza Abbassian, an economist at the United Nations' Food and Agricultural Organization (FAO) told reporters Wednesday.
The FAO's food price index, a formula based on the wholesale price of 55 products including rice, meat, wheat, milk and cheese, reached a record high in December. The index has risen in each of the past six months and it hit 214.7 in December. The previous record was 213.5 set at the height of the food crisis in June of 2008, when soaring prices led to riots in several countries such as Haiti, Somalia and Cameroon while others, including India and Vietnam, restricted rice exports.
"There is still room for prices to go up much higher, if, for example, the dry conditions in Argentina tend to become a drought and if we start having problems with winterkill in the northern hemisphere for the wheat crops," Mr. Abbassian said. "I am feeling less optimistic than I was in November - we have not had much good news."
Prices for many agricultural commodities started rising last fall largely because of poor grain crops in Canada, Russia and Ukraine. They have spiked even higher recently because of dry weather in Argentina, a major soybean producer, and flooding in parts of Australia, which has wiped out many wheat crops. The price of wheat has jumped about 17 per cent in the last month while corn is up 11 per cent. Both are now close to two-year highs. Other food staples have been soaring as well, including canola, up 43 per cent last year, and sugar, which hit 30-year highs.
"The price spike has raised fresh concerns about food price inflation," said Kenrick Jordan a senior economist at the Bank of Montreal. Mr. Jordan said while the impact will be manageable for developed countries: "In developing countries, where food accounts for a much more significant part of household budgets, the inflation threat is much greater."
The tight supply situation is expected to get worse. The FAO estimates food production will have to increase by 70 per cent by 2050 as the world population expands to 9.1 billion people from about 6.8 billion people in 2010.
Canadian consumers will start feeling the impact as well.
Food prices stayed relatively stable in this country last year because of fierce competition among food companies and grocery stores that were reluctant to pass along rising input prices for fear of losing market share. That helped keep food inflation below overall inflation for much of the year. But the sharp increase in commodity prices has prompted food companies like General Mills, Kraft, Sara Lee, Kellogg and ConAgra Foods to drop discounts and start rising prices on many products.
"We simply cannot have deflationary or even flat pricing in light of significant and accelerating input cost inflation," ConAgra's chief executive Gary Rodkin said during a recent conference call with analysts. The company, which makes dozens of products from popcorn to French fries and spaghetti, said it expects input prices to jump by up to 6 per cent in 2011.
Hormel Foods, whose products include Spam, is hiking prices by up to 4 per cent this winter while Sara Lee has already raised some product prices and expects further increases this year.
Normally rising food prices would be good news for Canadian farmers, but not this year. Persistent rains across much of the Prairie provinces last spring and summer led to some of the worst grain crops in years in terms of production and quality.
"It's bad," said Maureen Fitzhenry, a spokeswoman for the Canadian Wheat Board. "From a quality perspective, it's probably the worst wheat quality profile overall in at least six years."
Nonetheless, she said the long-term outlook remains upbeat. "The fundamentals that would support grain prices are expected to remain fairly strong."
One key difference between the current price run-up and the 2008 food crisis is the price of oil. It is currently around $90 (U.S.) a barrel whereas it topped $140 in 2008. Fertilizer prices are also lower as is the price of rice, a key food staple in many countries. The current trend, though, is worrisome, Mr. Abbassian said.
"But we could have bumper crops everywhere and the prices could collapse - you never know - but, at the same time, high prices are not going to go away and there is a strong possibility that they might remain high for two years."
With a report from Guardian news service