Global effort to calm food prices

A worker in Jakarta stands on sacks of rice to be transported to Bangka island. Indonesia's central bank gave a strong indication Friday that it was ready to tighten monetary policy to fight rising inflation.
A worker in Jakarta stands on sacks of rice to be transported to Bangka island. Indonesia's central bank gave a strong indication Friday that it was ready to tighten monetary policy to fight rising inflation. (Beawiharta)
Washington Post Staff Writer
Saturday, January 15, 2011

Faced with rising international food prices, governments around the world are cooking up measures to protect domestic supplies and keep a lid on prices at home.

Russia has banned grain exports until the end of the 2011 harvest. South Korea and the Philippines have suspended some of their import duties on foodstuffs such as fish and powdered milk. In December, Sri Lanka released rice stocks and re-imposed a price ceiling that had been removed in October. And across the Mideast and North Africa, governments have kept food prices low by using big subsidies.

The Food and Agriculture Organization of the United Nations recently warned that in December its food price index surpassed its previous peak of early summer 2008, fed by particularly sharp increases in sugar, cooking oils and fats. Corn and soy prices were also moving up quickly, with corn hitting a 29-month high Friday.

In Bangladesh, rice prices jumped 8 percent in December. In India, the price of onions soared 80 percent in just one week.

"Now everyone is having fears of going back to the levels of 2007-08," said Sudakshina Unnikrishnan, a Barclays Capital commodities analyst.

Rising food prices may have been an ingredient in the instability in Tunisia that drove that country's president, Zine el-Abidine Ben Ali, from office Thursday. The demonstrations and riots against Ben Ali were sparked in December by a license dispute between police and a fruit-and-vegetable vendor, who set himself on fire in protest. Earlier this week, one of the measures Ben Ali used in a futile bid to cling to power was to cut prices for sugar, cooking oil and other commodities.

But other countries, big and small, are struggling to deal with rising inflation rates. China this month boosted interest rates in an effort to cool its economy and calm inflation, which has been particularly strong for food.

In Armenia, hit by adverse weather, "the contraction of agricultural output and a rise in imported wheat prices have translated into higher food prices," the International Monetary Fund said last month. "Comprising nearly half of the weight of the consumer price index, higher food prices have pushed annual inflation over 9 percent in recent months."

Some of the factors feeding the rise in food prices - floods in Australia, last summer's drought in Russia, and bad weather in South America - are temporary, says Unnikrishnan. But, she adds, "if you're looking at next year or a few years out, the trading range has shifted higher on emerging market demand, lower inventories and biofuel policies that are adding a new layer of demand onto the market."

Despite surging prices in other countries, food prices in the United States remained relatively stable in December, rising a modest 0.1 percent, the Labor Department reported Friday. But U.S. consumer prices overall jumped last month by 0.5 percent owing to a sharp increase in fuel costs, particularly for gasoline.

Lester Brown, president of the Earth Policy Institute, a Washington think tank, warns that long-term food trends are worrisome, especially for soybeans. He notes that in 1995 China produced the same amount of soybeans it consumed, but since then production has stayed the same and consumption has jumped fivefold.

World demand for soy, used largely as an ingredient in livestock feed, is rising at a rate of more than 6 percent a year, Brown says, but crop yields are fairly constant. As a result, he said, the amount of land devoted to growing soy has risen at an unsustainable rate. More land in the United States is devoted to growing soy than to wheat, he said. In Brazil, more land is used for soybeans than for all grains combined.

Above all, Brown said, water shortages and climate change will constrain output. Every one-degree Centigrade increase in temperature will reduce grain yields by 10 percent, he said.

That will take some time, however. For the moment, analysts are looking more closely at seasonal factors.

Unnikrishnan said wheat prices might not reach their 2008 peak because global stocks are about 45 percent higher than they were then. But markets for corn are tighter, she said; U.S. corn stocks have plunged to less than half their levels a year ago and lower than any time in the past 15 years. Meanwhile, China, traditionally a modest exporter of corn, has been importing it for the past six months.

International agencies are worried about the effect of higher food prices on the world's poorest people.

"We are really concerned about the impact of rising food prices on the most vulnerable. They are the ones who tend to be most hit," said Ngozi Okonjo-Iweala, a World Bank managing director and former Nigerian finance minister. "You saw what happened in 2008 and 2009 . . . 64 million-plus people were thrown into poverty."

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