FAO forecasts continued high cereal prices

New Delhi, Nov 11: Global cereal prices are likley to remian high for the coming year largely due to problems in production in several major exporting countries and very low world stocks, the Food and Agriculture Organisation (FAO) has warned.

FAO expects many countries will pay more for importing cereals from world markets than they did in previous years, even though they are expected to import less. Record freight rates and high export prices are the main reasons for the increase in their import bills, Food Outlook report issued by FAO says.

FAO's latest analysis suggests that international cereal prices are fuelling domestic food inflation in many parts of the world.

For most cereals, says the report, ''supplies are much tighter than in recent years while demand is rising for food as well as feed and industrial use. Stocks, which were already low at the start of the season, are likely to remain equally low because global cereal production may only be sufficient to meet expected world utilization''.

According to the report, agricultural commodity prices rose sharply in 2006, and in some cases they are soaring at an even faster pace this year.

The report further says the current state of agricultural markets which is distinguished by increasing world prices of nearly all major food and feed commodities.

High international prices for food crops such as grains continue to ripple through the food supply chain, contributing to a rise in retail prices of such basic foods as bread or pasta, meat and milk.

According to the FAO analysis, the world has rarely felt ''such a widespread and commonly shared concern about food price inflation, a fear which is fuelling debates about the future direction of agricultural commodity prices in importing as well as exporting countries, be they rich or poor''.

Soaring petroleum prices have driven up prices for agricultural crops by raising input costs and by boosting demand for those crops used to produce biofuels.

Food Outlook warns that the combination of high petroleum prices and the desire to address environmental issues is likely to boost demand for feedstocks, especially sugar, maize, rapeseed, soybean, palm oil and other oilcrops as well as wheat for years to come.

Increased fuel costs, stretched shipping capacity, port congestion and longer trade routes have pushed up shipping costs, making freight rates a more important factor in agricultural markets than in the past.

According to Food Outlook, record freight prices not only increased the cost of transportation, they have also changed the geographical pattern of trade, as many countries are sourcing their imports from suppliers closer to home to save on transport costs.

The fact that the dollar depreciated sharply against all major currencies lessened the real impact of the rise in world prices in non-dollar economies. However, countries whose currencies did not strengthen will bear the full brunt of the rise in US dollar-denominated commodity prices.

All indications point to more wheat being planted around the world for harvesting next year. A strong expansion in wheat production, assuming normal growth in consumption, is bound to bring down wheat prices, The Food Outlook report states.

Among all agricultural commodities, dairy products have witnessed the largest gains compared with last year, ranging from 80 per cent to more than 200 per cent.

UNI