New Pricing Paradigm

ROME - Dec 6/07 - SNS -- International grain markets have clearly entered a new pricing paradigm, with record demand able to deal with record world harvests, suggests the United Nation's Food and Agriculture Organization (FAO).

World cereal production is now expected to total 2101 million metric tons (MT) this year, with most of the increase in coarse grains, especially maize or corn in the United States. The figure represents a slight downward revision since the UN agency's November forecast, but still indicates a record level of production, up 4.6% from last year.

International cereal prices in November remained high and volatile, however, reflecting sustained demand, particularly from the biofuels industry, coupled with historically low levels of stocks and insufficient increases in production, mainly of wheat, in exporting countries, according to FAO's latest Crop Prospects and Food Situation report.

Rises in international prices have translated into higher retail prices of basic foods in many countries, according to the report.

Most affected by the food inflation are those developing countries that depend heavily on imports to cover their cereal consumption requirements. Low-income population groups are anticipated to bear the heaviest burden, because their daily energy intake depends more on cereal-based products and the share of food in their total expenditures is high, the report says.

For the group of Low-Income Food-Deficit countries (LIFDCs), 2007 cereal production is forecast to increase only marginally, the report says, adding that if the largest countries, China and India, are excluded, overall cereal output for the remaining countries is expected to register a significant decline. Together with an anticipated reduction in quantities imported by these countries in 2007/08, this will lead to lower per caput cereal food and feed consumption.

Despite the smaller volumes to be imported from world markets, the cereal import bill of LIFDCs will, however, increase sharply for the second consecutive year due to higher prices and freight rates.

Good crops, although slightly lower than last year's bumper harvests, are being gathered in most of the Sahel and Eastern African countries, with the exceptions of Senegal, Cape Verde and Somalia. Production is also anticipated to decline significantly in Nigeria, which could affect cereal prices in the region.

In Far East Asia, despite floods, landslides and cyclones during the growing season in several countries, record 2007 cereal output has been obtained, the report says.

Early prospects for the 2008 wheat crop are favorable, according to the report. With winter wheat planting virtually complete in the northern hemisphere, latest estimates point to a significant increase in the global wheat area, in response to current high prices and the removal of the compulsory land set-aside for 2008 in the European Union, the world's largest producer. Previously, the EU required that farmers leave 10% of their land fallow.

Emergency food aid is needed in Bangladesh, where the livelihoods of over 8.5 million people were adversely affected by Cyclone Sidr in mid-November.

In Zimbabwe, with world-record-level inflation of 7 983%, the economic crisis continues to deepen, affecting an estimated 4.1 million food insecure people. In Lesotho and Swaziland, poor cereal harvests for the third year in a row due to droughts preclude an improvement in the food security of these countries, already afflicted by problems of poverty and HIV/AIDS.

In the Democratic Republic of the Congo large numbers of people affected by the continuing conflict need food assistance. Food aid is also needed in Burundi following a poor 2007 harvest, combined with resettlement of returnees and IDPs.

According to the report, 37 countries worldwide are currently facing food crises. For the complete list of countries in need of assistance, click here.