Despite a record global output of wheat, the prices shot up as India entered as an importer.
The UNCTADs trade and development report-2007 has said that strong demand for bio-fuels was in response not only to high crude petroleum prices but also to the growing concerns about global climate change. Global prices of sugar, corn and vegetable oils, in particular, shot up as these are used for production of bio-diesel. In 2006 sugar prices increased by 49.4%, maize prices by 24.4% and that of palm oil by 13.3%
The UNCTAD report has raised concerns over the competing use of land for production of food, animal feedstock and bio-fuels. Corn cultivation in US for bio-fuel production has displaced soybean cultivation. The soybean prices rose sharply in mid-2006. The situation, in turn led to higher prices for animal feedstock and meat. The higher food prices can have dramatic consequences for food-importing developing countries, the report said.
The report also raised concerns that bio-fuel crop cultivation may cause deforestation, water scarcity and biodiversity loss. It, however, suggested that a possible solution may be the extraction of bio-oil from tropical plants like, Jatropha which can be grown on degraded lands and therefore not compete with food crops.
Analysing the terms of trade, the report said that in 2006 there was significant gains for oil and mineral exporting countries. Most vulnerable have been the oil-importing countries which export few primary commodities. East Asia, South Asia and Africa suffered deterioration in the terms of trade.
FAO has that the global cereal prices will remain high despite the record world cereal production. The International Grains Council in August 23,2007 had said that the grains prices shot up due to increase in wheat prices by $ 20 to $ 35 a tonne.
Sharp increase in ocean freight rates further lifted the landed costs for importers. Global wheat output is estimated to be 607 million tonne, about 16 million tonne higher than in 2006.
In this context, farmer leaders and several opposition parties have criticised the governments recent decision to import 795,000 tonne wheat for maintaining buffer stock at prices ranging between $ 385 to $ 398 a tonne on cost and freight basis.
The average landed cost of imported wheat (excluding the handling and transportation costs) would work out to Rs 15,670 a tonne, while the government is paying the domestic farmer only Rs 8,500 a tonne for purchase of wheat.
The critics have alleged that the global wheat prices started shooting up when India began importing wheat from February 2006.