Food prices forecast to stay high for 10 years

Food prices forecast to stay high for 10 years

By Javier Blas in London

Published: May 21 2008 23:31 | Last updated: May 21 2008 23:31

Food prices have undergone a paradigm shift and will not drop back to pre-crisis levels for at least the next 10 years, putting long-term pressure on governments facing the food crisis, according to a forthcoming report.

The report, by the Organisation for Economic Co-operation and Development and the UN’s Food and Agriculture Organisation, will say food prices have moved to a “higher plateau” because of rising demand from the biofuels industry and developing countries such as China.

But the Agricultural Outlook 2008-2017, due to be published next week, does offer a respite in the short term, forecasting prices will ease from this year’s record levels, according to a summary seen by the Financial Times.

“Food prices would be considerably higher in nominal terms than in the past but below the current records,” said an official familiar with the report. Compared with average prices for 2005-07, the report forecasts that in 2017 the price of wheat, adjusted for inflation, will be 2 per cent higher, rice 1 per cent higher and corn 15 per cent higher. Oilseed prices are expected to be up 33 per cent.

The price projections imply falls from the current records but suggest that food inflation will continue to be a long-term problem, particularly for poor countries.

“Without exception, average real prices are likely to remain above those observed during 1985-2007,” said the report summary. The OECD said the projections were preliminary numbers.

Alexander Müller, an assistant director-general at the FAO in Rome, said the world needed to get used to higher food prices. “In the near future, we will have to live with higher prices for agricultural commodities.”

The new estimates of elevated prices in the long term come as the cost of food shows the first tentative signs of stabilising after surging more than 50 per cent in the past 12 months. In April the FAO’s food index registered its first drop in 15 months and officials said prices appeared to be “reaching a peak”.

Wheat prices have fallen by 40 per cent since their February record, soyabean prices have also dropped, and corn and rice prices have stabilised at around their recent record levels.

However, the report summary dashed hopes for a rapid and sustained fall, saying: “As opposed to other instances of sharp increases in agricultural commodity prices that have rapidly dissipated, we could be facing higher prices for some time.”

In previous spikes, such as the food crisis of the 1970s or the corn crisis of 1996, prices have returned to their previous level quickly.

The report will warn that with many agricultural commodity supplies continuing to be tight, low stock levels are not likely to be replenished quickly, so “the possibility of further sharp prices hikes . . . seems to be likely for the next few seasons”.

The OECD/FAO report is based on the assumption that conditions remain fav-ourable for further growth in biofuels production.