Food Prices Predicted to Ease Before Entering Steady Climb

PARIS, May 29 -- The recent steep jump in global food prices should ease in the near term, according to a new report, but prices over the next decade are likely to remain high, spurred by the rising cost of oil, the declining dollar and increasing demand for biofuels.

The rush to invest heavily in ethanol and other biofuels needs to be reevaluated, particularly since the benefits "are at best modest, and sometimes even negative," according to the annual global agriculture assessment by the U.N. Food and Agriculture Organization (FAO) and the Organization for Economic Co-Operation and Development (OECD).

About 33 percent of the expected rise in food prices over the next decade can be tied to biofuels, OECD agriculture official Loek Boonekamp said, but the economic, environmental and energy-security benefits of diverting agriculture products to fuel "are probably smaller than commonly expected."

OECD Secretary General Angel Gurría told reporters in releasing the 72-page report that "we do not expect the current price levels to last" but that "the average of most agricultural commodity prices over the next 10 years will still exceed the average of the previous decade by about 10 to 50 percent in real terms, depending on the commodity you look at."

One reason for the spike in food prices is temporary weather anomalies, such as droughts in wheat-producing regions. But other changes affecting prices are more lasting, such as population increases, demand for biofuels and changes in food consumption patterns as rising income in developing nations such as China and India push people away from traditional staples such as rice toward meat and dairy products typically consumed by the more affluent.

Overlaying these issues, the report says, are complex, constantly changing variables, particularly the downward slide of the dollar and the rising price of oil, which is used in producing and transporting food. And a key unknown is what impact climate change could have on future food production, the report says.

Gurría said higher investment in research and development, technology transfers to less-developed countries and the use of genetically modified seeds could increase agriculture output, lowering prices.

"Today, around 862 million people are suffering from hunger and malnourishment -- this highlights the need to reinvest in agriculture," said Jacques Diouf, director-general of the FAO.

While higher prices help people who produce food, "the poor, and in particular the urban poor in net food importing countries, will suffer more," the report said. "In many low-income countries, food expenditures average over 50 percent of income and the higher prices . . . will push more people into undernourishment."

In such countries, "rising food prices mean an erosion of the capacity to meet basic needs, and this is likely to become a potential source of political tension and even violence," the report said. Escalating food prices have already touched off riots in some countries.

Food prices in the past year have risen more than 20 percent in China, Kenya and Sri Lanka; more than 18 percent in Botswana and Pakistan; and 11 to 14 percent in Indonesia, South Africa, Egypt, Haiti and Bangladesh, according to the report.

No country has been immune. In the past year, the report says, the price of butter was up 50 percent in Poland, 40 percent in France and 36 percent in Jordan. Eggs rose 34 percent in the United States and 30 percent in Britain. The price of vegetable oil -- a key commodity in diets in developing countries -- rose 47 percent in Botswana and 18 percent in India. Meat prices jumped 45 percent in China.

The report predicts prices will continue their climb, on an average basis, in the coming decade. When the average for 2008 to 2017 is compared with the 1998 to 2007 period, beef and pork prices could be about 20 percent higher, raw and white sugar about 30 percent; wheat, corn and skim milk powder 40 to 60 percent; butter and oilseeds more than 60 percent; and vegetable oils more than 80 percent, the report says.

The report estimates the cost of oil at $90 a barrel this year and next, gradually rising to $104 a barrel in 2017. The projections illustrate the difficulty in working with such a moving target, because in fact, speculation has driven the price of oil as high as $135 a barrel in recent weeks. Some analysts predict the price will fall to $80 a barrel next year, while others forecast prices of $225 or more by 2012.

FAO economist Merritt Cluff said food prices in the report would be even higher "if we were able to redo the models" based on current oil prices.

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