No food crisis yet as grain prices soar: U.N.

MILAN Fri Jul 20, 2012 9:05pm IST

A farmer carries rice crops while harvesting on a rice paddy field in Thuy Huong village, outside Hanoi June 3, 2012. REUTERS/Kham

A farmer carries rice crops while harvesting on a rice paddy field in Thuy Huong village, outside Hanoi June 3, 2012.

Credit: Reuters/Kham

MILAN (Reuters) - World markets are not yet facing a crisis of the kind seen in 2007/08 when high food prices sparked riots in some poorer countries, although soaring grain prices fuelled by an intense U.S. drought are a cause for concern, the UN's food agency said.

U.S. corn prices have surged more than 55 percent in five weeks as crops continued to wilt under the worst drought in the U.S. Midwest since 1956, stoking fears of food shortages, and little respite is in prospect. <GRA/>

Abdolreza Abbassian, senior economist and grain expert at the UN's Food and Agriculture Organisation (FAO) said plentiful supplies of rice and better availability of wheat meant the situation was not as serious as four to five years ago.

A mix of high oil and fuel prices, growing use of biofuels, bad weather and soaring grain futures markets pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti.

"It is a serious situation which has to be monitored closely but it is too early to refer to it as a food crisis situation," Abbassian said. "We do not see any production or supply problems with rice. That is very important for food security of millions of people around the world."

Record high prices for staple foods in 2011 were a major factor contributing to the Arab Spring uprisings in the Middle East and North Africa, as well as bread riots in other parts of the world.

Lower corn demand for biofuels can also take some steam out of the grain rally, said Patrick Armstrong, a multi-asset manager at Armstrong Investment Managers.

"Last time we saw corn spike in 2008 oil was also around record highs making the margin for corn-based ethanol attractive. Should corn continue to spike and oil prices stay below $100 per barrel, it will not make sense to add ethanol beyond the required 10 percent in blended fuel," Armstrong said.

CAUSE FOR CONCERN

"We are concerned for two reasons," Abbassian said.

"First, the pace at which price rises are taking place and second, because at least for the time being there seem to be no relief in prices, in particular for corn, soybeans and wheat," he told Reuters in a telephone interview.

Export prices of corn (maize) and wheat jumped some 20 percent in the first three weeks of July compared to their June level, the FAO said in its price update on Friday.

That is likely to lead to a rebound in international food prices in July after three months of falls, Abbassian said. The FAO is due to update its world food price index on August 9.

The current surge in grain prices, coupled with a strong U.S. dollar and economic slowdown in many Western countries which saps consumer demand, is likely to deal a heavy blow to developing countries many of which import grains and export other commodities, Abbassian said.

"The combination of a higher import bill and lower export earnings will be an additional stress for their economies. That could create difficult, and for some countries, unpredictable situations," Abbassian said.

The FAO expected world coarse grain supplies to tighten in the current season due to corn problems in the drought-stricken United States. The U.S. Department of Agriculture (USDA) is expected to cut its view of corn yields in its upcoming updates, Abbassian said.

(Additional reporting by Claire Milhench; editing by Keiron Henderson)

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