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WFP Keeps Careful Watch On Food Prices

WFP is watching international food prices closely, as continued rises could increase pressure on the hungry poor and at the same time raise the cost of providing food assistance. A new report warns that food prices could climb higher in 2011, especially if harvests are poor.

Next year's harvests will be crucial in determining whether food prices continue to climb in 2011.

(Copyright: WFP Photolibrary)

WFP is watching international food prices closely, as continued rises could increase pressure on the hungry poor and at the same time raise the cost of providing food assistance. A new report warns that food prices could climb higher in 2011, especially if harvests are poor.

ROME -- WFP, which plans to feed more than 100 million people in 2010, is watching international food prices closely, as continued rises could increase pressure on the hungry poor and at the same time raise the cost of providing food assistance. 

Prices in many of the countries where WFP works remain above long-term averages, and higher than the period before the 2008 food price crisis. (See Graph)

“Our experts are monitoring the market situation carefully, with an eye to the impact higher prices could have on both international markets where we buy our food, as well as on local ones where the hungry live ,” said Nancy Roman, WFP's Director of Communications, Public Policy and Private Partnerships . “Half of WFP’s food is purchased with cash donations so higher prices have a direct effect on how far our donor dollar can go.” 

Hedging against high prices

How can aid agencies hedge against high food prices? Renowned Oxford economist Paul Collier has a few ideas.

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Pressure on the poor

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In-country and regional markets, where WFP buys as much food as possible, often lag behind international markets. They also react to different, more local factors. Prices on these markets are still below the peaks seen during the food crisis of 2008, but the latest data from WFP’s Market Monitor bulletin confirms that seen against longer-term averages they are high.

Typical food basket

In Bangladesh, the cost of a typical food basket is already 54 percent higher than the five-year average. In Mozambique, maize costs 96 percent more than the long-term average and imported rice is 127 percent dearer.

Meanwhile, the hikes on international markets since the summer have brought the food price index produced by WFP’s sister agency, the UN Food and Agriculture Organization (FAO) to its highest level in two years. In October the bellwether index stood at 197, up more than 4 percent compared to September and almost 18 percent higher than July.

One of the results of this surge is that the world’s poorest countries are expected to end up paying 11 percent more for their food imports in 2010, FAO said in a report released on Wednesday.

The price hikes on international markets this year have been driven by a combination of events, among them the drought in Russia, which devastated crops, and the country’s subsequent ban on wheat exports till mid-2011. Currency market instability and market speculation are also seen as factors.

Higher prices ahead

In the latest edition of its Food Outlook, FAO warns that contrary to earlier predictions, world cereal production is now forecast to shrink by 2 percent in 2010 and so the world should be aware of the possibility of even higher food prices in 2011.

“With the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011 and be prepared,” the report said.

At the launch of the FAO report, senior analysts described the prospect for food prices in 2011/2012 as "uncertain." They said much would depend on the levels of new plantings of crops for the upcoming seasons. In 2008, when cereal prices spiked, farmers responded positively, by increasing their plantings, which led to an almost immediate fall in prices.

Despite the upward pressure on prices, analysts say that at least two factors make the current situation different from 2008. First, the price of oil, which was a key driver of food prices in 2008, is today much lower (around US$80 as opposed to US$150 a barrel). Secondly,  in 2008, world cereal stocks had hit historic lows. Inventories are now higher and so there is more room for manoeuvre.