FAO warns of 'food price shock'
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COMMENTS 
India, like other emerging economies, is experiencing what the UN Food and Agricultural Organisation calls a ‘food price shock’, with food inflation doubling in just one month
The UN Food and Agricultural Organisation (FAO) warned of a ‘food price shock’ on January 5, 2011, after its benchmark index of agricultural commodities prices shot up to a record last month, surpassing levels of the 2007-08 food crisis.
Internationally, cotton, sugar, wheat, palm oil, soy and other commodities prices have risen significantly in the past few months. Wheat is at a 28-month high, while sugar is at its highest in three decades.
The UN body said its food price index, a basket tracking the wholesale cost of commodities like wheat, corn, rice, vegetable oils, dairy products, sugar, and meat, jumped to 214.7 points, surpassing the peak of 213.5 set in June 2008. The FAO food index is at its highest since the measure was first calculated in 1990.
Poor harvests around the world due to changing weather patterns may have precipitated the crisis. Grains economist at the FAO, Abdolreza Abbassian said weather predictions for early-2011 suggest that prices of a few key commodities would remain high in the coming months.
India’s food inflation has touched a 23-week high with increases in the price of onions, edible oil, wheat, vegetables and milk. Food inflation has more than doubled from its level of 8.6% on November 20, 2010, to 18.32% for the latest week ended December 25. Of the 20 essential commodities monitored by the government, the prices of most have increased over the last three months.
The data prompted Deutsche Bank to say that they now see it difficult for India’s inflation to fall below 7% by March, and that there could be an additional upside to inflation if policymakers allow an increase in the price of diesel to factor in rising crude oil prices.
The silver lining is that India is sitting on huge wheat and rice stocks with an export ban on both these grains. As of December 1, 2010, the Food Corporation of India, the main grain procurement and distribution agency, had wheat and rice reserves of 24 million tonnes each.
In the last one week, the price of tomatoes has gone up by 113%, cabbage by 127%, brinjal 95%, onion 83% and cauliflower 70%. Onion prices rose over 23% in the week ending December 25. Prices of other commodities like milk, eggs, sugarcane and even raw cotton are rising sharply.
Unseasonal rains are officially blamed for pushing up the prices of vegetables such as onions and tomatoes, but some commentators point instead to poor agricultural productivity and transport. Years of ignoring agricultural reform and weak government investment in agriculture have created a situation where food is becoming scarcer and more unaffordable for poor communities. Some analysts suspect the role of profiteering middlemen in bringing in the crisis.
Source: Business Standard, January 7, 2011
http://www.abc.net.au/rural/news/content/201101/s3108161.htm, January 2011
Hindustan Times, January 7, 2011
www.ndtv.com, January 7, 2011