Record high food prices stoke fears for economy

Nicolas Sarkozy

SINGAPORE/LONDON, (Reuters) – Record high food prices  are moving to the top of policymaker agendas, driven by fears  it could stoke inflation, protectionism and unrest and dent  consumer demand in key emerging economies.

Nicolas Sarkozy

The United Nations’ food agency (FAO) said on Wednesday  that food prices hit a record high last month, above 2008  levels when riots broke out in countries as far afield as  Egypt, Cameroon and Haiti.

In Asia, official data and analyst estimates both pointed  to inflationary pressures. Chilli prices have increased  fivefold in Thailand in the last year and Indonesia’s president  called for households to plant food in their own gardens.

President Susilo Yudhoyono Bambang told a cabinet meeting  people should be “creative” in planting, with Trade Minister  Mari Pangestu leading the way in planting at home.

“I have 200 chilli plants in flowerpots,” Pangestu told a  briefing yesterday. “The agriculture ministry is informing  farmers how to take care of the plant and also encouraging  consumers to plant chilli in their own yards.”
Surging food prices have often provoked unrest in urban  areas of poor countries, where food makes up a high proportion  of household purchases.

Analysts say African and Caribbean economies dependent on  food exports could be particularly hard hit, helping stoke  unrest and potentially pushing governments towards imposing  export bans and expropriating foreign-owned farmland. If Asian and other emerging consumers have to spend more of  their income on food, other purchases will fall — and that  could be bad news for a global economy that has placed much of  its hopes for recovery on consumption in developing economies.

World Bank President Robert Zoellick urged governments in a  newspaper opinion column to avoid protectionist measures as  food prices rose and called upon the Group of 20 leading  economies to take steps to make sure the poor get adequate food  supplies.

French President Nicolas Sarkozy has asked the World Bank  to conduct urgent research on the impact of food prices ahead  of G20 meetings later this year, a source familiar with the  matter said.

INDIAN INTEREST
RATE PRESSURE

Food price protests were seen a factor in the ousting of  Indonesia’s long-term autocrat Suharto in 1998, and anger over  a farmland purchased by South Korean firm Daewoo at a time of  rising prices was in part blamed for a 2009 coup in  Madagascar.

India’s food price inflation rose to a one-year high of  more than 18 percent in the year to the end of December, data  on Thursday showed. That, along with rising fuel prices, is the  main reason analysts expect the central bank to raise rates  this month.

The Indian government has used a range of measures for  years to ensure stable food prices, but since last year has  boosted the release of national stocks of grains and has  pledged to continue duty-free imports of crude vegetable oils.

In China, several cities have implemented direct controls  to limit food price increases and the central government has  vowed to eliminate speculation in the country’s commodities  markets.

The cost of food rose 11.7 percent in the year to November,  while non-food items were up just 1.9 percent. But, reflecting  concerns that inflation is creeping beyond food to the wider  economy, consumer goods prices and housing costs showed clear  jumps.

Fu Bingtao, an economist with the Agricultural Bank of  China in Beijing, said in a report the price of grains, the  country’s most important food, would rise in 2011 by 10  percent, adding to an 11.7 percent rise in 2010.

“Speculative trading and hoarding of specific agricultural  products may continue,” he said. The FAO said sugar and meat were at their highest since its  records began in 1990. Prices were at their highest since 2008  crisis levels for wheat, rice, corn and other cereals.

Benchmark prices solely in Asia for rice suggested a  different picture.

The region’s staple food now stands at $535 per tonne —  less than half its 2008 levels of more than $1,000 a tonne that  prompted several governments at the time to impose curbs on  exports to protect their domestic markets.
But most experts expect upwards price pressure to continue,  particularly if countries slap on export bans and further  squeeze supply, and short-term investors again buy into  agricultural commodities as they did in 2008.