Rome meet fails to define the cause of current food crisis

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: Global food prices are expected to rise further as world leaders failed to take concrete actions to reverse the trend. The recent dip in wheat prices by between $10 and $80 a tonne and the weakening of rice export quotations are not enough indications to bring cheer. This appears temporary and is driven primarily by the reports of a good harvest and favourable outlook for the next crop.

Maize prices remaining volatile in the background of the continued strengthening in the global energy market and further increase in ocean freight rates, however, raise concerns about the futures market behaviour. The International Grain Council’s projection of the increase in global wheat production to 650 mt in 2008-09, up by 46 mt over the previous year and increase in carryover stocks to 131 mt may bring in some confidence to meet the projected demand of 632 mt.

But this expectation may be short-lived. According to International Grain Council (IGC) the increased global grain supplies will almost entirely be absorbed by the rising use, especially to make ethanol. More wheat and barley will be used for feed in the place of maize and sorghum, which would be used more for producing bio-fuel. The world’s total grain production is projected to increase to 1,712 mt and the IGC taking into account the alternate uses of grains has increased the consumption demand to 1,714 mt.

More serious concern is the projected fall in global maize production by 14 mt. It would be 763 mt against the consumption demand of 786 mt. Industrial uses of maize, particularly for ethanol will total 199 mt, up by 30 mt over last year. Earlier, the IGC projections, however suggested that use of grains to make ethanol would rise by 31% to 124 mt.

The IGC report of May 30, 2008 noted: “World ethanol output continues to increase, the rate of expansion likely to slow only slightly in 2008-09, despite reduced credit availability, high plant construction costs and strong grain markets. Soaring crude oil prices will support the profitability of the industry regardless of official production incentives.”