Record worldwide food prices may remain high because the output response needed to ease supply concerns may take years, the IMF says.
Increasing incomes in developing countries have boosted demand for meat and dairy, requiring more grain for livestock feed and land for grazing animals, Thomas Helbling, an adviser for the IMF’s research department, and Shaun Roache, an economist, wrote in an article.
Rising demand for biofuels and adverse weather also have tightened food supplies, the IMF said.
“Over time, supply growth can be expected to respond to higher prices, as it has in previous decades, easing pressure on food markets, but this will take time counted in years rather than months,” Helbling and Roache wrotes in the article published on Thursday in the agency’s Finance & Development magazine.
SURGING FOOD PRICES
The global food price index, compiled by the UN’s Food & Agriculture Organization, surged to a record last month as all food groups except sugar rose, the agency said on Thursday. Rising food costs and corruption sparked political unrest across North Africa and the Middle East, ousting leaders in Tunisia and Egypt, the largest buyer of wheat.
“There’s a risk that the current price spike could persist for longer than the 2007-2008 experience,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia, said in a phone interview from Sydney yesterday. “There are more commodities involved in this current spike and that means it’s going to take longer to rebuild the inventories of all those back up to what we would deem safer levels.”
Corn futures in Chicago surged 92 percent in the past year as rising demand for livestock and ethanol in the US pushed the global stocks-to-use ratio to the lowest in 37 years.
Wheat jumped 65 percent in the past year after drought last year in Russia and Eastern Europe prompted countries to restrict exports. Dry weather curbed corn output in the US and floods in Asia have restricted rice supplies, the IMF said.
Three-quarters of the global growth in demand for major crops in the past decade has been in emerging markets, the article said.
High food costs still have the biggest impact on developing countries, where consumers spend a greater percentage of their incomes on food, the IMF said.
“The world may need to get used to higher food prices,” Helbling and Roache wrote.
“Policy makers, particularly in emerging and developing economies, will likely have to continue confronting the challenges posed by food prices that are both higher and more volatile than the world has been used to,” they wrote.
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