Food costs at record high as U.N. warns of volatile era

[Guest guest]

http://news.yahoo.com/s/nm/20110203/wl_nm/us_food_prices

Food costs at record high as U.N. warns of volatile era

By Svetlana Kovalyova and Mair Svetlana Kovalyova And Mair – 2 hrs 38

mins ago

MANILA/WASHINGTON (Reuters) – Record high global food prices showed no sign of

relenting following a rash of catastrophic weather, highlighted by a major U.S.

snowstorm and a cyclone in Australia, which could put yet more pressure on

prices and spark further unrest around the world.

The closely watched U.N. Food and Agriculture Organization Food Price Index on

Thursday touched its highest level since records began in 1990.

The index rose for the seventh month in a row to 231 in January, topping the

peak of 224.1 in June 2008, when the world was last gripped in a food crisis.

" These high prices are likely to persist in the months to come, " FAO economist

and grains expert Abdolreza Abbassian said in a statement.

Surging food prices have helped fuel the discontent that toppled Tunisia's

president in January and that has spilled over to Egypt and Jordan, raising

expectations other countries in the region would secure grain stocks to reassure

their populations.

World Bank President Zoellick urged global leaders to " put food first "

and wake up to the need to curb price volatility.

" We are going to be facing a broader trend of increasing commodity prices,

including food commodity prices, " he told Reuters in an interview.

SUPPLY THE KEY

Catastrophic storms and droughts have been battering the world's leading

agriculture countries in recent months, including flooding and a massive cyclone

in Australia and a powerful winter storm that swept across parts of the United

States.

Dubbed " Stormageddon, " one of the biggest snowstorm in decades dumped up to 20

inches of snow in some parts of the U.S. grain belt this week, paralyzing grain

and livestock movement. Meanwhile, more cold weather in the U.S. Plains ignited

concerns the region's winter wheat lacked adequate insulating moisture.

U.S. wheat prices surged to 2-1/2 year highs on Thursday before retreating

slightly on profit taking, along with prices of the other big crops such as corn

and soybeans. But traders said pressure remains on wheat prices with forecast

for more cold in the U.S. Midwest.

Sugar prices also surged to three-decade highs on fears of damage Cyclone Yasi

would bring to the Australian cane crop. Prices for Malaysian palm oil, a

cooking staple in the developing world, hit 3-year highs on flooding.

Big companies have had to adjust to higher raw material costs. Kellogg Co, the

world's largest breakfast cereal company, said on Thursday it has boosted prices

on many of its products to offset rising costs for ingredients such as grains

and sugar.

" Today's announcement by the Food and Agriculture Organization should ring alarm

bells in capitals around the world, " said Gawain Kripke, a policy and research

director for Oxfam America, an international development group.

" Governments must avoid repeating the mistakes of the past when countries

reacted to spiraling prices by banning exports and hoarding food. This will only

make the situation worse and it is the world's poorest people who will pay the

price, " he said.

Janis Huebner, economist at Germany's DekaBank said inflation partly fueled by

increasing food prices could in turn trigger interest rate rises in several

countries this year.

" This could mean a slowing down of growth in the countries which raise their

interest rates, " he said. " This could involve Asian countries and other regions,

this would somewhat brake growth but I do not expect a hard landing. "

STOCK BUILDING

Some countries, particularly where food prices loom large in household budgets,

have been building up food stocks to contain prices -- and to limit the

political and social fallout.

During the last food price crisis, the World Bank estimated that some 870

million people in developing countries were hungry or malnourished. The FAO

estimates that number has increased to 925 million.

" 2008 should have been a wake-up call, but I'm not yet sure all the countries in

the world that we need to support this have woken up to it, " the World Bank's

Zoellick said.

Indonesia, Southeast Asia's biggest economy, last week bought 820,000 metric

tons of rice, lifting rice prices, while suspending import duties on rice,

soybeans and wheat.

Algeria last week bought almost 1 million metric tons of wheat, bringing its

purchases to at least 1.75 million since the start of January, and ordered a

speeding up of grain imports.

On a day of bloody confrontation in Egypt, where protesters are demanding an end

to the 30-year rule of Hosni Mubarak, the U.N. World Food Programme's executive

director tte Sheeran said the world was now in an era where it had to be

very serious about food supply.

" If people don't have enough to eat they only have three options: they can

revolt, they can migrate or they can die. We need a better action plan, " she

said.

(Additional reporting by Saul in London, ne Geller in New York,

Lesley Wroughton and Doering in Washington and Hogan in

Hamburg; editing by Thatcher, Keiron , Blinch and

Xavier d)