Global food prices fall in Feb, supply risks loom: World Bank

Warns drought in US & dry spells in South Africa, Australia may play spoilsport

Global food prices dropped for the sixth straight month in February, but they still hover near the record levels scaled in August 2012 and remain volatile, according to a latest report by the World Bank. It warned that drought in the US and dry spells in countries such as Argentina, South Africa and Australia could hurt food supplies in the coming months.

Food prices continued to decline between October and February, but were just 9% lower than the peak levels of August, said the World Bank’s quarterly food price watch report released late Wednesday. The World Bank’s Food Price Index showed global prices of wheat tumbled by 11%, sugar by 10% and maize by 6% during the four-month period through February.

“Lower demand from a sharp fall in the use of wheat feed and reduced maize consumption for ethanol in the US pushed prices down. Reported favourable weather conditions in some regions have also raised hopes of better crop supply for 2013,” it said.

However, prices remain vulnerable to several uncertainties. Global stocks of cereals fell 3% last year, mainly due to a decline in wheat stocks (by 9%) and coarse grains (by nearly 6%). The global stocks-to-use ratio also dropped compared with the previous season, from 22% to 20.6% for all cereals, although conditions are tighter for stocks of coarse grains than those of wheat.

“Major exporters? stocks-to disappearance ratios (a measure that compares stocks of cereals vis-?-vis the country?s use and exports) became even thinner: 16.4% for all cereals, 13.2% for wheat, and 8.1% for coarse grains (again reflecting tighter conditions for coarse grains). In contrast, global stocks for rice remain much stronger,” the report said.

Moreover, coupled with dry spells in some key producing countries, the third straight monthly rise in global oil prices in February could also weigh on food prices due to increased transportation costs. A drawdown in Thailand’s accumulated rice stockpiles ? estimated at 12 million tonne and equivalent to one-third of the world’s total traded rice ? could be destabilising to food markets, it said.

“Weather forecasts have recently improved in Brazil, but it is still too soon for conclusive supply estimates from upcoming harvests. The continued drought in the US and dryness in Argentina, South Africa, and Australia also cast doubts over supplies in the coming months,” it said. “On the demand side, China?s announced increasing needs of imported grains (especially maize) augur growing competition in international markets at a time when other large importers ? Mexico, Indonesia, the Republic of Korea, and Turkey ? are also increasing their import demands,” it said. The stronger demand from these nations may pressure the market,

it said.

“In the ?new normal? of high and volatile food prices, millions will continue to suffer from poor nutrition, whether it is hunger, undernutrition or obesity which can cause premature death. In 2008, the number of overweight adults was 1.46 billion, of which 508 million were obese. Even conservative estimates see that number rising to 2.16 billion for overweight adults and nearly doubling to 1.12 billion for obese by 2030 across all regions and in countries like China and India,” the Bank said.