/ 15 May 2008

FAO sees food prices staying high for two, three years

Food prices should stay high for the next two to three seasons but should eventually ease as stocks are replenished, the Food and Agriculture Organisation (FAO) said on Thursday.

Senior officials from the United Nations agency, testifying by video link to a Canadian Senate committee, also said corn prices would be supported this year by lower United States plantings and by increased demand for ethanol.

FAO commodities economist Abdolreza Abbassian said price rises for major grains in the past year had less to do with food being diverted to biofuels than with below-average yields and drought.

But for the current growing season, he said corn prices should be supported by 20-million tonnes in new demand for ethanol, combined with lower US plantings — barring big weather problems production should fall by 30-million to 35-million tonnes from last year’s record output.

The Canadian Parliament is processing government legislation which would mandate a minimum 5% ethanol content in petrol. Abbassian said the country should consider whether it will have less canola, wheat and barley for export and whether it might have to import corn.

The general message is that food prices will remain high for a while, though Abbassian said rice might be in a price bubble.

He said speculators had added to volatility, though they were basically following market trends.

Another FAO analyst, Ali Gurkan, head of the trade and markets division, said financial market speculation was unlikely to dissipate soon. – Reuters