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September 19, 2010

Russian drought spurs worldwide food price hikes

by Scott Martelle

Severe drought in Russia has sent world food prices 5 percent higher in recent months, according to a new report by the United Nations, and though they remain well below the record levels reached during the 2007-08 world food crisis, the higher prices have already fueled deadly riots in Mozambique.

Police in the capital, Maputo, opened fire on a mob of several thousand people -- some of them throwing stones -- in what officials said was an unsanctioned protest over the rise in food and commodity prices. The Associated Press reported that at least seven people were killed, including at least two children. The cost of bread in the southeastern African country has risen 25 percent in the past year, the AP reported, amid other commodity price increases.

Yet the U.N.'s Food and Agricultural Organization (FAO) said it expects no return to the crisis of 2008 despite Russia's recent decision to ban grain exports and massive flooding on the eve ofPakistan's wheat-planting season.

Abdolreza Abbassian, FAO's senior grain economist in Rome, told AOL News that "fears of a global food crisis remain unwarranted." Even though the Russian export ban shut off one of the world's major conduits of grains, large stockpiles and increased yields elsewhere would provide enough grain to meet demand. But prices would rise for importing nations, "which would mean an additional burden on poorer countries," he said.

"The big picture is this: After two consecutive years of record crops, world cereal inventories are able to cover the current anticipated production shortfall," Abbassian said. "And stocks held by the traditional wheat exporters, the main buffer against unexpected events, remain ample. ... FAO does not believe there is a crisis."

Elsewhere, a separate report Tuesday by the U.N. World Food Program (WFP) warned that Pakistan's woes were only beginning.

"There is a triple threat unfolding as this crisis widens and deepens," WFP's executive director, Josette Sheeran, said in a prepared statement after touring the flood-ravaged nation. "People have lost seeds, crops and their incomes, leaving them vulnerable to hunger, homelessness and desperation -- the situation is extremely critical. We urgently need continued and strengthened commitment to the people of Pakistan in this time of crisis."

In the United States, monthly Consumer Price Index updates by the Bureau of Labor Statistics through July showed relatively stable prices, with food up just under 1 percent. But the pressure on grain supplies has been a boon for American agriculture after the effects of the recent recession, according to reports released this week by the U.S. Department of Agriculture.

After dropping some 20 percent in 2009, projected farm earnings have rebounded this year, with net cash income expected to grow by 23 percent to $85.3 billion, the second highest total on record.

Agriculture Secretary Tom Vilsack told reporters that while a large share of the rise stems from meat production, grain exports were also spiking, leading the agency to raise its exports forecast for the current fiscal year to $107.5 billion. That's a $3 billion increase from the May forecast for the same period and "the second highest year on record." It also marks an $11 billion increase from the previous year, he said.

"Agriculture is one of the few major sectors of the economy today that has trade surplus, which we are now forecasting to be a little over $30 billion," Vilsack said. "What's more, we expect this progress to continue. ... Increased ag exports, especially of grains and meat, are going to help drive this rebound."

He said that every billion dollars of agriculture exports supports up to 9,000 jobs "and generates an additional $1.4 billion in economic activity."

But the good days won't be shared by all, said Steve Mercer, spokesman for U.S. Wheat Associates, a producers association.

"Some growers will be able to get higher prices, [but] many won't because they had already sold their wheat before the price run-up started in June, or had already contracted to sell at a specific price," he said. "Prices are up for sure because of crop problems in Russia and other exporting countries. U.S. wheat growers in the more northern areas and Pacific Northwest might benefit most."

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