Food Prices Set To Increase, Rich Countries To Be Hurt The Most

Corolla Financial Report: Despite record food production, prices will stay high and volatile throughout this year dampening global economic growth. End Quote

(1888PressRelease) June 29, 2011 - The United Nations Food and Agriculture Organisation (FAO) twice yearly Food Outlook analysis says rising demand for food will absorb most of the higher output, keeping food prices high and volatile throughout this year and into next despite record food production. The report cites a sharp rundown on inventories and only modest overall production increases for the majority of crops as reasons for continuing strong prices. The next few months will be critical in determining how the major crops will fare this year. Although prospects are encouraging in some countries such as the Russian Federation and Ukraine, weather conditions, featuring too little and in some cases too much rain, could hamper maize and wheat yields in Europe and North America. The report highlights some of the differences in the way investors behaved in the price surge of 2010/2011 versus 2007/2008. Much has been done to improve market transparency but more is needed according to guest experts. The FAO says higher food prices could mean poor countries will see food import costs rise by up to 30%, meaning that 18% of their total import bills will be spent on food this year, compared with the world average of 7%. The organisation says the next few months will be critical in determining how major crops will fare this year.

In a similar vein, the World Bank has cut its forecast for global growth, saying rising food and fuel prices are taking the wind out of the global economy's recovery this year. The Bank has projected global growth will only be 3.2% in 2011, a tenth point lower than its January estimate and sharply off the 3.8% pace of 2010. The development lender expects in that the world economy will rebound in 2012. High-income countries at the nexus of the 2008-2009 global financial crisis are still struggling to recover. Growth will slow from 2.7% in 2010 to 2.2% in 2011, slower than the previous 2.4% estimate. The world's biggest economy, the USA, is expected to grow a feeble 2.6% this year and accelerate to 2.9 per cent in 2012. By contrast, developing countries relatively sailed through the global downturn, providing the impetus for the global recovery.

Surprising to some, Japan's March 11 earthquake-tsunami disaster and unrest in the Arab world, while cutting sharply into domestic growth, will make only a modest dent in global growth. The disaster interrupted Japan's supplies of key parts and materials to global industries, especially the auto and electronics industries, while political turmoil in the Middle East and North Africa region affected those economies and pushed oil prices higher.

Some economists argue that the rise in food prices may help some Asian countries that are net exporters of food. They add with time, overall income inequality in Asia will be reduced as the income disparity in the population heavy countries, such as Thailand and China, is steadily falling. Net food exporters, Thailand, India and China, are set to raise their average incomes. But this will not be the same for the wealthier countries or net food importers, like South Korea, Hong Kong, and Singapore, who will see a reduction in their real income. Over the past 12 months in Asia, food prices have gone up by 25% in Vietnam, 11% in China and have risen between eight and nine per cent in Thailand, India and South Korea.

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