What the WTO-FAO alliance on food portends

Campaign material by GRAIN and Via Campesina to stop seed laws that criminalise farmers and to defend local seeds.

A convergence that the agri-business multinationals have long looked for is now beginning. The UN Food and Agriculture Organisation – whose constitution includes “bettering the condition of rural populations” as one of its four main purposes – has joined forces with the World Trade Organisation, whose concern for rural populations is precisely zero.

Both organisations call it a collaboration, but that term is a smokescreen. The FAO is technically being run under the supervision of its eighth director-general (since 1948; their tenures are far too long and Asian and South American members especially ought to have corrected this error long ago). José Graziano da Silva, the number eight, has since 2013 increased the pace at which the FAO also collaborates with the private sector – which means the international grain traders, the agricultural commodity cartels, the food and beverage multi-nationals, and last but not least the exceedingly powerful agricultural biotechnology corporations.

The WTO has described the new alliance as a “step up” on the issue of “trade and food security, as well as other issues”. The first item of collaboration by the trade body with the FAO will be to participate in the annual State of Agricultural Commodity Markets report, which this year will focus on trade and food security, and which the WTO has mischievously described as “the FAO’s flagship publication”. It isn’t, for the FAO’s State of Food and Agriculture is the flagship report, but that misappellation is a sign of the changes to come.

What is being sought, from the WTO point of view, is “evidence and greater clarity on a range of issues related to trade and food security”. This is ingenuous, for the WTO’s ‘greater clarity’ has only meant more trade, justified with make-believe macro-economical models that pretend trade is good for low income consumers and smallholder farm producers alike, and to ignore ground truth. For the FAO on the other hand, ‘greater clarity’ on the question of food and trade has long been available in-house in the form of the food balance sheets maintained for every country in FAOstat, which is the voluminous FAO database.

But the tone is being set by the WTO, which has said: “Considering the important role of open and strengthened food markets in supporting food security objectives, the two directors-general discussed how trade and the multilateral trading system could help in creating a more favourable global environment for food security and sustainable agriculture.” It obviously doesn’t occur to WTO Director-General Roberto Azevêdo and his secretariat that ‘the multilateral trading system’ and ‘sustainable agriculture’ are fundamentally incompatible.

The FAO’s description of its new alliance is couched in milder terms. The organisation has said the collaboration offers “mutual assistance on critical themes such as the functioning of international grain markets” but also invokes “evidence and greater clarity” on “the governance of trade flows and the pursuit of broader food security”. FAO has resorted to using the non sequitur that food security is closely linked to trade and therefore this alliance is important. As with the WTO, internal contradictions don’t matter – if FAO is discussing smallholder family farms, then food security doesn’t include trade; if FAO is discussing organic cultivation, then food security doesn’t include trade. But under an alliance with WTO, unquestionably it does.

FAO Director-general José Graziano da Silva has insisted that “food security and trade can together play a very important role to help fulfil FAO’s mandate”. What part of the mandate could be ‘helped’ by this alliance? The FAO member states are committed under its constitution to (1) raising levels of nutrition and standards of living of the peoples under their respective jurisdictions; (2) securing improvements in the efficiency of the production and distribution of all food and agricultural products; (3) bettering the condition of rural populations; and (4) contributing towards an expanding world economy and ensuring humanity’s freedom from hunger.

If called upon to do so by FAO member states – and I wish the G77 would summon up the critical voice to do so – the new alliance will probably be explained by the WTO and FAO as helping to fulfil the second and fourth objectives. Thus ‘improving the distribution’ of food and contributing to ‘expanding the world economy’ is what the alliance will use to show that the FAO’s mandated objectives (problematic as hey are already) are being followed.

What could the immediate implications be of the WTO now having a hand in setting the FAO’s ‘development’ agenda concerning the production of food staples and their use? Here is a short list:

1. The FAO overtly supporting the push, through the WTO, by the USA and other major grain exporting countries, for developing countries to increase their ‘trade facilitation’ measures – which means their physical and policy readiness to receive grain and manufactured food, no matter what the cost is locally.

2. This push will become stronger and energetic very quickly. So far, the Bali decision on public stockholding for food security purposes is to remain in place until a permanent solution is agreed and adopted. The WTO, the USA and the European Union want negotiations (which in their parlance means that all other countries accept their proposal) to be agreed to and adopted by 31 December 2015.

3. The new WTO-FAO alliance will immediately start exerting pressure on India, countries of the South and the G77 on Bali decisions concerning agriculture: tariff-rate quota administration, export competition and phasing out of cotton subsidies.

4. The FAO using trade-related arguments to defend the unacceptable biases in the existing WTO Agreement on Agriculture, and to beat down the developing countries stand (taken at the Bali ministerial meeting of the WTO in 2013) on the issue of public food reserves for food security.

5. The WTO using the FAO’s long experience in the field to sharpen its attack on the public food reserves systems of developing countries – which the US Trade Representative and its allies in the OECD calls ‘trade distorting’ – so that the socio-ecological institution of the smallholder farmer, and family farms, are done away with.

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The FAO mask slips further

Family farming is a descriptive phrase that rings well with environmentalists, with anthropologists and ethnologists who have had anything to do with food and its cultivation, with naturalists and especially with the many groups promoting agro-ecological farming all over the world. What could be wrong with recognising and valorising family farming?

The FAO’s view of smallholder farming, agri-business and markets, rendered in textbook business school fashion.

Quite a lot, when it comes through the machinery of the UN Food and Agriculture Organisation’s propaganda mill. The most cited of the FAO’s ‘flagship’ publications, the State of Food and Agriculture in 2014 has as its theme family farming, but this theme carries a passenger, which the FAO has described as ‘Innovation in family farming’. And that is how the mask has slipped further.

[The State of Food and Agriculture, FAO’s major annual flagship publication has as its 2014 theme ‘Innovation in family farming’ (the full report here and a summary here).]

The publication needs to be read not for the assertions of how important smallholder farming is, but for the conceptual machinery that has been assembled so that a technical take-over of small farms can be achieved with limited opposition. This is the scheme of the FAO of 2014, which is sadly a very different agency from what it was even a decade ago.

SOFA 2014 in its prose swings rather schizophrenically between sugary pronouncements about how family farms are “the custodians of about 75 percent of all agricultural resources in the world”, and therefore why they should be the new focus for an innovation that is techno-centric. The publication has made liberal use of terms such as “improved ecological and resource sustainability” and where the word ‘sustainable’ is used ‘vulnerable’ is surely not far behind. It isn’t, and SOFA 2014 goes to some lengths to convince its readers that most family farms are vulnerable in one or many ways.

The spin doctors employed by the FAO have come up with what the publication has called a triple challenge for family farming (challenges are most intimidating when they come in threes). This is: “yield growth to meet the world’s need for food security and better nutrition; environmental sustainability to protect the planet and to secure their own productive capacity; and productivity growth and livelihood diversification to lift themselves out of poverty and hunger”. The answer, according to the machine men of international crop science, is that they must innovate (or, better still, nominally hold the title to the factors of crop production while the innovation is administered by outside agents).

This very brief canning of the publication’s main objective helps to place in context the main messages of this year’s State of Food and Agriculture, which include:

“Family farms are part of the solution for achieving food security and sustainable rural development; the world’s food security and environmental sustainability depend on the more than 500 million family farms that form the backbone of agriculture in most countries.”

Here the device of a very large number, 500 million, is used to reassure the critics that the forces that would control the world’s crop staples are unlikely to homogenise such a number. But indeed it is their number and variety that are being studied carefully in order to find approaches that – to use the acidic terms of the multi-lateral banks – boost investor confidence. Hence the considered advice from FAO: “Family farms are an extremely diverse group, and innovation systems must take this diversity into account.”

There is more on complexity and diversity with specific regard to the institutions for crop science (and for food retail and sales, the porcine twin of formal modern agriculture research). The SOFA has said: “The challenges facing agriculture and the institutional environment for agricultural innovation are far more complex than ever before; the world must create an innovation system that embraces this complexity.” What the FAO means by “more complex than ever before” is the growing opposition to industrial agriculture, agricultural biotechnology and the use of genetic modification techniques. So, the embracing that is called for is one that should sound acceptable, non-threatening, inclusive, participatory and all the other terms that the World Bank, the Asian Development Bank and the United Nations Sustainable Development Goal-setters so volubly use.

Institutions cost money, which will come from where exactly? The FAO has a ready answer. “Public investment in agricultural R&D and extension and advisory services should be increased and refocused to emphasise sustainable intensification and closing yield and labour productivity gaps.” That is to say, leave the innovation bit to the private sector, turn your research centres (built and run with public monies) over to us, dismantle your nationalist agricultural extension service but give us the network, and look how we close yield and productivity gaps. That’s the pitch, in a nutshell, ignoring the several blunt cautions raised by other UN agencies (including the previous Special Rapporteur on the Right to Food) that we have quite enough food but far too little equity and fairness concerning how it reaches those who need it.

This publication, the State of Food and Agriculture, is the latest that has been outfitted to serve FAO’s new interest, camouflaged though it is. The usual empowering wordiness that has become so tiresomely characteristic of the UN system is on view here too: family farmers need an enabling environment, good governance, stable macroeconomic conditions, transparent legal and regulatory regimes, secure property rights, risk management tools, market infrastructure, capacity development through investment in education and training, participatory agricultural research, emphasise sustainable intensification, closing the yield and productivity gaps.

Until the next major report, this one will be turned into a mini-curriculum to be referenced by client governments so that a technologically obsessed industrial agriculture and seed industry annexes larger shares of old markets (India and South-East Asia) and totally subordinates small new ones (African countries). ‘Fiat panis’ (let there be bread) is the FAO motto and after a reading of SOFA 2014 one could be excused for considering that this motto be switched with ‘fiat food oligarchs’, for that is the direction the FAO, under Jose Graziano da Silva, is firmly pursuing.

Visualising livestock geography

One of the major limitations in livestock sector planning, policy development and analysis is the paucity of reliable and accessible information on the distribution, abundance and use of livestock. With the objective of redressing this shortfall, the Animal Production and Health Division of FAO has developed a global livestock information system (GLIS) in which geo-referenced data on livestock numbers and production are collated and standardized, and made available to the general public through the FAO website.

Where gaps exist in the available data, or the level of spatial detail is insufficient, livestock numbers are predicted from empirical relationships between livestock densities and environmental, demographic and climatic variables in similar agro-ecological zones.

[Reference: FAO. 2007. Gridded livestock of the world 2007, by G.R.W. Wint and T.P. Robinson. Rome, pp 131, Environmental Research Group, Oxford, and FAO Animal Production and Health Division]

The spatial nature of these livestock data facilitates analyses that include: estimating livestock production; mapping disease risk and estimating the impact of disease on livestock production; estimating environmental risks associated with livestock due, for example, to land degradation or nutrient loading; and exploring the complex interrelationships between people, livestock and the environment in which they cohabit.

It is through quantitative analyses such as these that the impact of technical interventions can be estimated and assessed. Also, by incorporating these data into appropriate models and decision-making tools, it is possible to evaluate the impact of livestock-sector development policies, so that informed recommendations for policy adjustments can be made.

The components of the information system thus created include: a global network of providers of data on livestock and subnational boundaries; an Oracle database in which these data are stored, managed and processed; and a system for predicting livestock distributions based on environmental and other data, resulting in the Gridded Livestock of the World (GLW) initiative: modelled distributions of the major livestock species (cattle, buffalo, sheep, goats, pigs and poultry) have now been produced, at a spatial resolution of three minutes of arc (approximately 5 km). These data are freely available through the GLW website1, through an interactive web application known as the Global Livestock Production and Health Atlas (GLiPHA)2, and through the FAO GeoNetwork data repository.

As well as detailing various components of the GLIS, this publication explains how livestock distributions were determined, and presents a series of regional and global maps showing where the major ruminant and monogastric species are concentrated. Spatial livestock data can be used in a multitude of ways. Various examples are given of how these and other datasets can be combined and utilized in a number of applications, including estimates of livestock biomass, carrying capacity, population projections, production and offtake, production-consumption balances, environmental impact and disease risk in the rapidly expanding field of livestock geography.

Informed livestock-sector policy development and planning requires reliable and accessible information about the distribution and abundance of livestock. To that end, and in collaboration with the Environmental Research Group Oxford (ERGO), FAO has developed the “Gridded livestock of the world” spatial database: the first standardized global, subnational resolution maps of the major agricultural livestock species. These livestock data are now freely available for downloading via this FAO page.

Six months of peak for the FAO food index

Since 2011 January, the FAO food price index components have recorded some of their highest monthly readings. Sugar touched a peak in January (420.2) and February (418.2), oils reached highs in February (279.3) and January (277.7), cereals reached highs in April (265.4) and May (261.3), meat touched a peak in June (180.4) and in April (180.4).

The consolidated food price index has been within 6 points (2.5%) of the February peak (237.7) for all the months of 2011. In June 2011 the index is less than 4 points off the February peak.

FAO’s Food Price Index rose one percent to 234 points in June 2011 – 39 percent higher than in June 2010 and four percent below its all-time high of 238 points in February of this year. The FAO Cereal Price index averaged 259 points in June, down one percent from May but 71 percent higher than in June 2010. Improved weather conditions in Europe and the announced lifting of the Russian Federation’s export ban contributed to the price drop.

However the maize market remained tight because of low 2010 supplies and continued wet conditions in the United States. Prices of rice were mostly up in June, reflecting strong import demand and uncertainty over export prices in Thailand, the world’s largest rice exporter. The FAO Sugar Price Index rose 14 percent from May to June, reaching 359 points, 15 percent below its January record. Production in Brazil, the world’s biggest sugar producer, is forecast to fall below last year’s level. The FAO Dairy price Index averaged 232 points in June, virtually unchanged from 231 points in May. The FAO Meat Price Index averaged 180, marginally up from May with poultry meat rising three percent and climbing to a new record, while pig meat prices declined somewhat.

Following two consecutive revisions to the US crops and planting prospects for 2011, FAO’s latest forecast for world cereal production in 2011/2012 stands at nearly 2 313 million tonnes, 3.3 percent higher than last year and 11 million tonnes above FAO’s last forecast on 22 June. World cereal utilization in 2011/2012 is forecast to grow 1.4 percent from 2010/2011, reaching 2 307 million tonnes, just five million tonnes under forecast production. World cereal stocks at the close of the crop season in 2012 are now expected to stand  six million tonnes above their opening levels.  While wheat and rice inventories are expected to become more comfortable, coarse grains stocks, especially maize, would remain tight.

The FAO Food Price Index (FFPI) averaged 234 points in June 2011, 1 percent higher than in May and 39 percent higher than in June 2010. The FFPI hit its all time high of 238 points in February. A strong rise in international sugar prices was behind much of the increase in the June value of the index. International dairy prices rose slightly in June, while meat prices were stable. Of all the major cereals, prices of wheat fell most and rice increased. Among the oils and fats, prices of soybean oil were steady but palm oil weakened.

[Detailed data available from FAO here.]

The FAO Cereal Price Index averaged 259 points in June, down 1 percent from May but 71 percent higher than in June 2010. Improved weather conditions in Europe and the announced lifting of the export ban by the Russian Federation (from July) depressed wheat prices. However, maize markets were supported by tight old crop (2010) supplies and continued wet conditions in the United States. Prices of rice were mostly up in June, reflecting strong import demand and uncertainty over export prices in Thailand, the world largest rice exporter.

The FAO Oils/Fats Price Index averaged 257 points in June, down marginally from May. Continued production uncertainties and expectation of stronger world import demand sustained soybean oil prices. By contrast, palm oil prices eased further, reflecting improved supply prospects and ample export availabilities in Southeast Asia. The FAO Dairy Price Index averaged 232 points in June, virtually unchanged from 231 points in May. This was the result of diverging price movements, with prices of skim milk powder and casein up by 5 percent, whole milk powder down by 3 percent, while prices of butter and cheese remained stable.

The FAO Meat Price Index averaged 180 points, marginally up from May. Poultry meat prices experienced a 3 percent rise, breaking a new record, while pig meat prices declined somewhat. Prices of bovine and ovine meat were subject to modest increases, from already high levels. The FAO Sugar Price Index averaged 359 points in June, up 14 percent from May and only 15 percent below its January record. The price strength reflects  dynamic short-term demand against tight exportable availabilities, notably in Brazil, the world’s largest sugar producer where production is forecast to fall below last year’s level.

FAO March bulletin, Crop Prospects and Food Situation for 2011

The FAO has released its Crop Prospects and Food Situation, the first for 2011, in March. The overview is:

• 

  Wheat production: leading producers, (million tonnes)

  FAO’s first forecast for world wheat production in 2011 stands at 676 million tonnes, 3.4% up from 2010. This level of production would still be below the bumper harvests of 2008 and 2009.

• International grain prices remained volatile in the first three weeks of March.
• The cereal import volume in low-income food deficit countries (LIFDCs) as a group is anticipated to decline in 2010-11 due to increased production. However, their import bill is forecast to rise by 20% following higher international prices.
• In Asia, prospects for the 2011 wheat crop are mostly favourable. In China, the outlook remains uncertain but the easing of the drought situation in the North China Plain is a positive development. In Japan, a powerful earthquake and subsequent tsunami have caused devastation with a potentially significant impact on agriculture and food trade.
• In North Africa, the current situation in Libyan Arab Jamahiriya has resulted in the displacement of large numbers of people and disruption to the flow of goods and services in this heavily cereal import dependent region. WFP has initiated a regional emergency operation to provide food assistance to the affected people.
• In Southern Africa, prospects for the main 2011 maize crop are generally favourable and relatively low prices have helped stabilize food security.
• In Eastern Africa, food insecurity has increased in drought-affected pastoral areas of Somalia, Kenya and Ethiopia despite bumper harvests in 2010 and generally low and stable food prices.
• In Western Africa, post-election violence continues to cause a large population disruption and disturb trade and livelihoods in Côte d’Ivoire and the neighbouring countries.

Countries requiring external assistance for food, 29 of which 21 in Africa

Overall favourable outlook for global 2011 wheat production: At this stage of the season, with the bulk of the coarse grains and paddy crops yet to be planted in the coming months, it is still too early for even a preliminary forecast of global cereal output in 2011. For wheat, however, in the northern hemisphere, which accounts for the bulk of the global production, winter crops are already developing or soon to come out of dormancy, while spring planting is underway in some countries and a preliminary picture of global prospects is already available.

FAO’s first forecast for world wheat production in 2011 stands at 676 million tonnes, representing a growth of 3.4% from 2010. Plantings have increased, or are expected to increase, in many countries in response to strong prices, and yield recoveries are expected in areas that were affected by drought in 2010, the Russian Federation in particular. The global output forecast for 2011 would be still below the bumper harvests in 2008 and 2009.

In Asia, prospects for the 2011 wheat crop, to be harvested from April, are mostly favourable in India and Pakistan, where good harvests are forecast. However, the outlook in China is uncertain because of winter drought in the North China Plain despite recent beneficial precipitation.

Cereal export prices

In the Asia CIS subregion, Kazakhstan is the major producer and the bulk of the crop is yet to be sown this spring. Weather permitting, farmers are expected to maintain the relatively high planting level of the past two years, especially in view of strong prices. Assuming also a recovery in yields after last year’s drought-reduced level, a significant increase in production could be achieved. In North Africa, early prospects for the 2011 wheat crops are generally favourable, except in Tunisia where dry conditions point to a repeat of last year’s drought-reduced crop.

In the southern hemisphere, where the major wheat crops are still to be sown, producers are also expected to increase plantings in response to this year’s favourable price prospects. However, this may not translate to larger crops in Australia or Argentina, where yields are assumed to return to average after bumper levels in 2010.

World cereal production and utilisation

Estimate of world cereal production in 2010 slightly up on December forecast: The estimate for world cereal production in 2010 has been revised upward slightly since previously reported (Crop Prospects and Food Situation, December 2010) to 2,237 million tonnes (including rice in milled terms), just 1.1% below the bumper output in 2009. The decline in cereal production in 2010 was entirely due to lower output in developed countries while in developing countries production rose significantly by almost 5%. The estimate for world wheat production in 2010 now stands at almost 654 million tonnes, 1 million tonnes above FAO’s December forecast but still some 4% less than in 2009.

The latest revision mostly reflects a better than expected outcome of the harvest in Argentina, which more than offset some downward adjustments to estimates in Asia (most notably Kazakhstan) and Europe (mostly the Russian Federation). For coarse grains, the estimate of output in 2010 is now put at 1 117 million tonnes, 7 million tonnes up from the previous forecast and just marginally less than the 2009 level. The upward revision was largely driven by increased estimates for China, India, Ethiopia and Sudan.

The estimate for global rice production in 2010 remains unchanged since December at 466 million tonnes (in milled terms). Improved prospects for Brazil, China mainland and Thailand largely offset a sizeable downward revision for India. At this level, the aggregate output of the 2010 rice seasons, which will close when the northern hemisphere countries complete the harvest of their secondary crops by May-June, would be 2% up from 2009, mostly on account of large gains in Asia, where Bangladesh, China, India and Indonesia, the leading world producers, are all expected to tally larger crops.

For 2011 February, another new peak for world food prices, FAO index rises higher

The UN Food and Agriculture Organization (FAO) has said that global food prices increased for the eighth consecutive month in February, with prices of all commodity groups monitored rising again, except for sugar.

FAO said it expects a tightening of the global cereal supply and demand balance in 2010-11. In the face of a growing demand and a decline in world cereal production in 2010, global cereal stocks this year are expected to fall sharply because of a decline in inventories of wheat and coarse grains. International cereal prices have increased sharply with export prices of major grains up at least 70% from February last year.

“Unexpected oil price spikes could further exacerbate an already precarious situation in food markets,” said David Hallam, Director of FAO’s Trade and Market Division. “This adds even more uncertainty concerning the price outlook just as plantings for crops in some of the major growing regions are about to start,” he added.

Food Price Index – The FAO Food Price Index averaged 236 points in February, up 2.2% from January, the highest record in real and nominal terms, since FAO started monitoring prices in 1990. The Cereal Price Index, which includes prices of main food staples such as wheat, rice and maize, rose by 3.7% in February (254 points), the highest level since July 2008.

The FAO Dairy Price Index averaged 230 points in February, up 4% from January, but well below its peak in November 2007. The FAO Oils/Fats Price Index rose marginally to 279 points in February, a level just below the peak recorded in June 2008. The FAO Meat Price Index averaged 169 points in February, up 2% from January. By contrast, the FAO Sugar Price Index averaged 418 points in February, slightly below the previous month but still 16% higher than February 2010.

Cereal supply and demand – FAO expects winter crops in the northern hemisphere to be generally favourable and forecasts global wheat production to increase by around 3% in 2011.This assumes a recovery in wheat production in major producing countries of the Commonwealth of Independent States. So far, conditions of winter crops in those countries are generally favourable.

The latest estimate for the world cereal production in 2010 is 8 million tonnes more than was anticipated in December but still slightly below 2009. This month’s upward revision reflects mostly higher estimates for production in Argentina, China and Ethiopia.

The forecast for world cereal utilisation in 2010-11 has been revised up by 18 million tonnes since December. The bulk of the revision reflects adjustments to the feed and industrial utilization of coarse grains. Larger use of maize for ethanol production in the USA and statistical adjustments to China’s historical (since 2006-07) supply and demand balance for maize are the main reasons for the revision.

Winter drought threatens China wheat production

Urbanisation in agricultural plains, visible from the flight path close to Beijing. Photo: Rahul Goswami

The FAO has just released a special briefing on wheat production in China, through its Global Information and Early Warning System on Food and Agriculture (GIEWS). “A severe winter drought in the North China Plain may put wheat production at risk,” said the FAO. “Substantially below-normal rainfall since October 2010 in the North China Plain, the country’s main winter wheat producing area, puts at risk the winter wheat crop to be harvested later in the month of June.”

Low precipitation resulting in diminished snow cover has reduced the protection of dormant wheat plants against frost kill temperatures (usually below -18°C) during winter months from December to February. Low precipitation and thin snow cover have also jeopardized the soil moisture availability for the post-dormant growing period. Thus, the ongoing drought is potentially a serious problem.

FAO China drought map showing cumulative rainfall and deficit in the wheat growing region.

FAO’s GIEWS said that the main affected provinces include Shandong, Jiangsu, Henan, Hebei and Shanxi, which together represent about 60% of the area planted and two-thirds of the national wheat production. According to official estimates some 5.16 million hectares out of the total of about 14 million hectares under winter wheat may have been affected in these provinces. The drought has reportedly affected some 2.57 million people and 2.79 million livestock due to the shortages of drinking water.

So far there have been some positive developments, such as the relatively mild temperatures, particularly the absence of frost kill temperatures, and the lower than average sub-zero temperature days. This combined with increased supplementary irrigation made available by the Government is likely to compensate to some extent the negative impact of low snow fall and low moisture availability. However, adverse weather, particularly extreme cold temperatures could still devastate yields. The Government has allocated some USD 15 billion to support farmers’ incomes and subsidize the costs of diesel, fertiliser and pesticide.

This drought in north China seems to be putting further pressure on wheat prices, said FAO, which have been rising rapidly in the last few months. In January 2011 the national average retail price of wheat flour rose by more than 8% compared to two months earlier and stood at 16% higher than a year earlier. Although the current winter drought has, so far, not affected winter wheat productivity, the situation could become critical if a spring drought follows the winter one and/or the temperatures in February fall below normal.

The climb to food price peak in two charts

These charts describe the 12-month rise in two indices: FAO’s Food Price Index, whose all-time high is the cause for so much alarm, and the IMF’s commodity index for food, which is less often referred to for food price burden impacts, but is no less important.

The FAO Food Price Index, comparative rise over 12 months for 2010 Feb to 2011 Jan and for 2007 Jul to 2008 Jun.

We see the index movements until the 2008 peak and the current peak of the FAO index and of the IMF food index (below). Over a year’s rise they are similar, but the worrying factor is the base for the 2010-11 rise, which is higher in both.

The IMF Commodity (Food) Price Index, comparative rise over 12 months for 2010 Feb to 2011 Jan and for 2007 Jul to 2008 Jun.

The hammer blow of the triple crisis, food in February 2011

The FAO Food Price Index (FFPI) rose for the seventh consecutive month, averaging 231 points in January 2011, up 3.4% from December 2010 and the highest (in both real and nominal terms) since the index has been backtracked in 1990.

Prices of all the commodity groups monitored registered strong gains in January compared to December, except for meat, which remained unchanged. Changes in the composition of  the meat price index (read more) have resulted in adjustments to the historical values of the FFPI. One implication of this revision is that the December value of the FFPI, which previously was the highest on record, is now the highest since July 2008.

The Cereal Price Index averaged 245 points in January, up 3% from December and the highest since July 2008, but still 11% below its peak in April 2008. The increase in January mostly reflected continuing increases in international prices of wheat and maize, amid tightening supplies, while rice prices fell slightly, as the timing coincides with the harvesting of main crops in major exporting countries. The Oils/Fats Price Index rose by 5.6% to 278 points, nearing the June 2008 record level, reflecting an increasingly tight supply and demand balance across the oilseeds complex.

FAO food price index deflated, 2011 February

See earlier posts on food, grain and prices:

Food production and grain trade / FAO food price index tops the 2008 peak / Food inflation crippled India’s households in 2010 / Early price indicator for 2011 foodgrain / Only 16 points under the 2008 peak, FAO’s food price index / Bringing nutrition back into climate change talks / Grain market outlook, end October 2010 / How the World Bank is leveraging the new food crisis.

The Dairy Price Index averaged 221 points in January, up 6.2% from December, but still 17% below its peak in November 2007. A firm global demand for dairy products, against the backdrop of a (normal) seasonal decline of production in the southern hemisphere, continued to underpin dairy prices. The Sugar Price Index averaged 420 points in January, up 5.4% from December. International sugar prices remain high, driven by tight global supplies. By contrast, the Meat Price Index were steady at around 166 points, as falling prices in Europe, caused by a fall in consumer confidence following a feed contamination, was compensated by a slight increase in export prices from Brazil and the USA.

The Index averaged 231 points in January and was up 3.4% from December 2010. This is the highest level (both in real and nominal terms) since FAO started measuring food prices in 1990. Prices of all monitored commodity groups registered strong gains in January, except for meat, which remained unchanged. “The new figures clearly show that the upward pressure on world food prices is not abating,” said FAO economist and grains expert Abdolreza Abbassian. “These high prices are likely to persist in the months to come. High food prices are of major concern especially for low-income food deficit countries that may face problems in financing food imports and for poor households which spend a large share of their income on food.”

“The only encouraging factor so far stems from a number of countries, where – due to good harvests – domestic prices of some of the food staples remain low compared to world prices,” Abbassian added. FAO emphasized that the Food Price Index has been revised, largely reflecting adjustments to its meat price index. The revision, which is retroactive, has produced new figures for all the indices but the overall trends measured since 1990 remain unchanged.

FAO food price index tops the 2008 peak

The UN Food and Agriculture Organization’s food price index has risen to 214.7 for December 2010, which is above its peak of 213.5 in June 2008.

This new peak, at a time when the price of crude oil is above USD 90 a barrel, is the strongest signal yet that global foodgrain supply has entered a critical phase. The FAO index has been rising steadily through the second half of 2010 – we discussed it here.

The cereal price index stands at 237.6 which is almost 40 points below the peak of 274.3 (in April 2008). The oils price index stands at 263 which is just under 20 points less than the peak of 282.6 (in June 2008). The dairy price index stands at 208.4 which is 60 points under the peak of 268.6 (in November 2007).

But the sugar and meat price indices are at all-time highs. The meat price index is now at 142.2 (in September 2008 it was 137.4 and its previous all-time high was 139.3 in September 1990). The sugar price index is now at 398.4 which is an extraordinary 180 points above its all-time high of 218 (in March 1990 – it was 207 at the maximum during 2008). The sugar price index crossed 300 in August 2008 and remained above 300 until March 2010, and again crossed 300 in September 2010.

Comparing three-month averages for the FAO food index and its main index components helps us understand how the 2010-11 food price crisis compares with its predecessor in 2007-08:

Food     Meat       Dairy     Cereals    Oils       Sugar
3-month avg
at 2008 Jun    210.4    129.5    240.8    271.7    273.9    173.9
3-month avg
at 2010 Dec    206.4    141.2    206.3    227.0    242.1    373.7

A Bloomberg report quotes FAO senior economist Abdolreza Abbassian: “One might expect prices to come down in spring, and this may be in fact the worst. But given how unexpected the weather events have been, I for one would not want to bet on anything along those lines.” The report said that concern about drought doing harm to Argentine harvests helped corn jump 52% in Chicago last year and soybeans to rise 34%. Prices also gained as China, the world’s largest soybean buyer, became a net corn importer. Wheat added 47% in 2010 as Russia, hit by its worst drought in a half-century, banned all cereal exports.

“Eyes will be on the Argentina corn crop,” Abbassian said. “There is still, unfortunately, a potential for grain prices to strengthen on the back of a lot of uncertainty. If anything goes wrong with the South American crop, there is plenty of room for them to increase further.” Potential damage to South American soybean and corn crops is of greater concern for world grain prices than harm to wheat in Australia caused by floods, according to the economist. Argentina and Brazil are the world’s second- and third-biggest corn and soybean exporters after the US. “The watch is definitely on South America for the next two weeks,” Abbassian said. “Given the very tight corn market, and demand from China for soybeans and the tight soybean market, if those commodities start to rise more, that will also lift wheat.”

Agrimoney has a report polling commodities fund managers in several financial centres worldwide for their views. What they say about the impact major forecasts, such as the World Agricultural Supply and Demand Estimates, have is worth paying close attention to. The WASDE report provides the US Department of Agriculture’s comprehensive forecasts of supply and demand for major US and global crops.

Reuters has reported that India’s food inflation rose for the fifth straight week to the highest in more than a year, reinforcing fears it has spilt over to broader prices and cementing expectations of a January interest rate hike. “But the spurt in prices of many basic foodstuffs has also raised questions over the government’s ability to control price rises through monetary policy, with poor infrastructure, hoarding and supply bottlenecks contributing to stubbornly-high food inflation.”

Unseasonal rains are officially blamed for pushing up prices of vegetables such as onions and tomatoes, but some commentators point instead to poor agricultural productivity and transport after years of few reforms and weak government investment. Onion prices, a key food staple for Indian families, rose over 23% percent over the week to December 25. The food price index rose 18.3% in the year to December 25 and the fuel price index climbed 11.6%. This compared with 14.4% and 11.6% annual rises the previous week.

The Wall Street Journal has said that food prices in India are continuing their sharp rise, increasing concerns among economists about a prolonged spell of high prices and adding pressure to the central bank to raise interest rates later this month. “The Reserve Bank of India next meets on Jan. 25 to consider an interest rate rise after pushing up rates six times in 2010 – one of the most aggressive tightenings of any central bank. But calls for a further move keep coming, most recently with the International Monetary Fund saying in a report released Thursday that rates need to be higher to curb inflation.

“The central bank will need to walk a fine line, however, since liquidity within the bank system is tight and further rate hikes could exacerbate that problem, economists said. Data from the Ministry of Commerce and Industry Thursday showed that the wholesale price index for food articles rose 2.5% in the week ended December 25 from the previous week. The year-on-year inflation rate for food surged to 18.32% from 14.44% the week before. It was the fifth straight week of rising food prices, which have been hovering at elevated levels in recent months.”