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Evert-jan Quak is knowledge broker of Food Security and Inclusive Economyat The Broker.

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Misleading optimism

Evert-jan Quak | 13 July 2011

The United Nations Food and Agriculture Organisation (FAO) food price index increased by 3 points to 234 points last month. That’s 39% percent higher than in June 2010 but four percent below its all-time high of 238 points in February of this year.

What does this say? The small increase is due to concerns about weak Brazilian sugar production that sent sugar prices up by 14%. The overall outlook is that after February food prices went a bit down, turning the steep curve of rising food prices. 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 food market seems to stabilise a bit but still at a high level and mainly due to slightly better commodity productions. Analysts, like from Goldman Sachs, are optimistic that this could be a turning point. While Goldman predicts that prices will remain high in the fall, by December 2011 they predict the price of a basket of farm products will be 7 percent lower year-over-year. But why should they have any reason to be optimistic? On the medium and long term food productivity growth cannot keep in touch with the rise in demand for food, the weather conditions will continue to be unpredictable for the next decades, and there will certainly not be a quick end to the production of biofuels after the failure of the G20 to make a firm commitment.

Also the Food Issue in Foreign Policy of May/June 2011 didn’t give any reason for optimism. Some statistics from that issue: 130 million Chinese are currently fed by overpumping and 175 million Indians are being fed with grain produced by overpumping. Foreign Policy concludes we live in a “food bubble” where “food nationalism” is on a dangerous rise.

The roots of the recent food price spike and the high food volatility haven’t been taken away and policy-makers haven’t made the necessary steps that will suggest they will be in the near future. We have to be happy with the recent stabilisation of the food market, but food prices remain high and uncertain, and only with global governance and leadership this can be turned sustainably. Now that’s not the case yet, any optimism is misleading!

Photo credit main picture: Photo by *MarS