Global food prices hit record high - CNN.com

(FT.com) -- Food prices hit a record high last month, surpassing the levels seen during the 2007-08 crisis, the UN's Food and Agricultural Organisation said on Wednesday.

The Rome-based organisation said the spike was not a crisis. But Abdolreza Abbassian, senior economist at the FAO, acknowledged that the situation was "alarming". He added: "It will be foolish to assume this is the peak."

The jump will increase fears about the repetition of the crisis of 2007-2008. However, poor countries have not so far seen the wave of food riots that rocked countries such as Haiti and Bangladesh two years ago, when agricultural commodities prices jumped.

The increase in food costs will also hit developed economies, with companies from McDonalds to Kraft raising retail prices. Higher food prices are also boosting overall inflation, which is above the preferred targets of central banks in Europe.

The FAO said its food price index, a basket tracking the wholesale cost of commodities such as wheat, corn, rice, oilseeds, dairy products, sugar and meats, jumped last month of 214.7 points -- up almost 4.2 per cent from November.

The FAO food index is at its highest since it started calculating the measure in 1990. During the 2007-08 food crisis, the index reached a peak of 213.5 in June 2008.

The FAO is drawing comfort from relatively stable prices for rice, one of the two most important cereals for global food security, which remains far below its record high. Rice is the staple of 3bn people in Asia and Africa.

However, the cost of the other critical staple, wheat, is now rising fast on the back of poor harvests.

"This is a high prices situation," said Mr Abbassian, although he pointed to the fact the costs of cereals -- and particularly rice -- were below the peaks set during the 2007-08 food crisis. "Rice and wheat are, from a global food security perspective, the critical agricultural commodities, not sugar, oilseeds or meat," he said.

The increasing costs of sugar, whose price recently hit a 30-year high, oilseeds and meat are the main reason behind the rise in the FAO food index.

The rise of commodity prices makes it likely that the global food import bill will hit a record high in 2011, after topping $1,000bn last year for only the second time. In November, the FAO raised its 2010 forecast to $1,026bn, up almost 15 per cent from 2009 and within a whisker of a record high of $1,031bn set in 2008 during the food crisis.

Agricultural commodities prices have surged following a series of crop failures caused by bad weather. The situation was aggravated when top producers such as Russia and Ukraine imposed export restrictions, prompting importers in the Middle East and North Africa to hoard supplies.

The weakness of the US dollar, in which most food commodities are denominated, has also contributed to higher prices.

© The Financial Times Limited 2011

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