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May 10, 2009

Falling global food prices bypass the developing world

by Surinder Sud

Even as the prices of food items in the international market dropped sharply from their peak in 2008 in response to higher global stocks and improved export supplies, food prices in most of the developing countries have defied this trend and remain high. This has constrained the economic access to food for the poor.

A recent analysis of domestic food prices in 58 developing countries, undertaken by the UN Food and Agriculture Organisation (FAO), has shown that the current prices are higher than a year earlier in 78 per cent of the cases and higher than their levels three months ago in 43 per cent of the cases. In 17 per cent of these countries, the domestic prices of food items are currently ruling at record highs.

The price situation is worse in the Sub-Saharan Africa, though the prices are relatively high elsewhere as well. Rice prices are currently ruling higher than their level year ago in all the Sub-Saharan countries. Wheat prices are higher than a year ago in 71 per cent of the countries in this region.

Among developing countries in other regions, rice prices are relatively high in Asia and wheat prices in the Central and South America.

In contrast, the prices of cereals in the international market are currently ruling far below their peaks touched in the first half of 2008. While wheat prices are currently ruling about 37 per cent below the 2008 record highs, those of rice are down by 53 per cent.

In the past one year, wheat prices have dropped by 39 per cent and rice by 30 per cent. The prices of other cereals, such as maize and sorghum, have also fallen by 31 and 30 per cent, respectively, during this period.

These trends in the global food bazaar are attributed to significant improvement in the export offerings in the wake of dramatic rebound in cereal production in 2008.

The FAO reckons the 2008 world foodgrain output at a record 2,289 million tonnes, up 2 million tonnes, or 7 per cent, from 2007. As a result, the global cereals stocks are also anticipated to increase sharply by the end of the 2008-09 crop growing seasons.

In 2009-10, however, the world food production is projected to fall by about 3 per cent from the record level in 2008. But the impact of lower output on the overall cereal supplies in the international market may not be much because of anticipated larger carryover stocks from the current season.

However, in the low-income, chronically food-deficit countries as a group, the 2009 cereal output may remain around the good level of 2008. Still, food emergencies are foreseen to persist in at least 31 countries, which are normally at risk from food security.

The FAO has ruled out any significant increase in food prices in the international market due to projected fall in global cereal output next year as the present economic problems are expected to weigh negatively on demand for cereals, especially for animal feed and bio-fuels. The supplies, therefore, are likely to remain higher than demand.

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