FAO sees energy, biofuel keeping world food costly

By Randall Palmer

OTTAWA (Reuters) - World food prices should stay high because of rising energy costs and the use of biofuels, but they may ease after stocks are replenished, the Food and Agriculture Organization (FAO) said on Thursday.

Senior officials from the U.N. agency, testifying by video link to a Canadian Senate committee, cautioned lawmakers to consider the effects on world markets of any attempt to require a minimum content of biofuels in gasoline and diesel.

"Our message is, 'Please be aware'," said the chief of the FAO's trade and markets division, Ali Gurkan. "The actions that you take might have spillover effects outside your borders."

FAO commodities economist Abdolreza Abbassian said price rises for major grains in the past year have 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 will likely be supported by 20 million tonnes in new demand for ethanol, combined with lower U.S. plantings. Barring big weather problems, production should fall by 30-35 million tonnes from last year's record output in the United States, he said.

U.S. corn exports could fall by 10 million tonnes but that still would put downward pressure on corn stocks.

Dwindling stock levels since the mid-1990s have been a key reason for recent price volatility, Gurkan said.

"When you don't have enough to buffer any unusual weather events that can occur, (that) can lead to extremely sharp increases in prices," he said.