Reuters

Global food prices hit a record high in February, the United Nations said Thursday, warning that fresh oil price spikes and stockpiling by importers keen to head off popular unrest would hit already volatile cereal markets.

Rising food prices are a morphing global concern, partly fuelling the protests which toppled the rulers of Tunisia and Egypt in January and February, which in turn unleashed unrest in North Africa and the Middle East from Algeria to Yemen.

The U.N. Food and Agriculture Organization’s Food Price Index hit its second straight record last month, further passing peaks seen in 2008 when prices sparked riots in several countries, driven by rising grain costs and tighter supply.

FAO economist Abdolreza Abbassian said global food prices are likely to remain close to record highs until the condition of new crops is known, adding that jumps in the oil price could have a bigger impact on grain markets, which have seen benchmark U.S. wheat prices surge 60% in the year to March.

“Until we know about new crops, that means waiting at least until April, our view is don’t expect any major corrections in these high prices, expect even more volatility now that oil has joined the crowd,” Abbassian said in a telephone interview.

Oil prices recently hit 2-1/2 year highs, nearing records set in 2008, with markets spooked on concern that North African and Middle East unrest would choke key supplies.

Farmers depend on fuel to run agricultural machinery, while dry bulk shippers are heavy oil users, costs which are passed on to food buyers.

Spiraling shipping costs for commodities threaten to drive food inflation even higher as nations from Asia to the Middle East and Africa scramble for supplies, analysts say.

Stockpiling by some major grain importers “beyond country’s normal needs” seeking to head off political unrest and secure supplies on domestic markets, has been adding uncertainty and volatility to the markets, Abbassian said.

“Political instability in the regions and countries affects the markets by adding uncertainty: will a country buy or not buy, why it had bought so much now … those things are disruptive to the normal trade,” he said.

The FAO, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, averaged 236 points in February, the record in real and nominal terms, up 2.2% from January’s record and rising for the eighth month in a row.

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Associated Press

ST. LOUIS – Prices for major crops climbed Thursday as a U.N. agency said food costs are now at their highest point since the agency began tracking them 20 years ago.

Global prices have surged 2.2 percent just in the past month, according to the U.N.’s Food and Agriculture Organization in Rome. The FAO’s index, which measures the price of staple food items and big commercial crops like corn and soybeans, reached its highest level since 1990.

The price increases have been driven by cereals, meat and dairy products. After rising for eight months, global prices of corn, wheat and soybeans are near record levels set in 2008, when riots erupted in countries like Haiti and U.S. food prices jumped.

U.S. consumers are relatively shielded from the higher grain costs. Average incomes are higher in the United States than in most of the world. And the cost of grain represents only a small portion of the prices U.S. consumers pay for food products. Still, U.S. prices are expected to creep up later this year for items ranging from poultry to soda to wheat bread.

In the developing world, the effects have been dire. Higher food prices have pushed an estimated 44 million people into extreme poverty. Economists think the problem could worsen as governments curtail grain exports to increase their own stockpiles.

At the heart of the problem is rising demand for crops. New middle-class consumers in China and India are eating more grain and meat than ever. At the same time, a burgeoning ethanol industry in the United States is consuming about 40 percent of the entire corn crop.

“Stock levels have run down, and that’s partly for policy reasons,” said David Hallam, director of FAO’s trade and market division, referring to mandates in the United States for how much corn-based ethanol must be used in gasoline. “There isn’t much of a cushion there.”

Higher oil prices have complicated the problem. Oil prices can drive up food prices by raising the cost of transportation and production for farmers and food processors. Higher gasoline prices also encourage ethanol producers to buy more corn and blend it into fuel. That can further raise corn prices.

“This is what happened in 2007-2008,” said Abdolreza Abbassian, a senior economist with the U.N. Food and Agriculture Organization. “The longer these prices remain high, the more we have to think that it could have a spillover effect into the grain sector, especially in coming weeks and months.”

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