Report Says High Food Prices

from the Wall Street Journal

By JOHN W. MILLER

High food prices will allow farmers to invest more and improve crop yields in Asia and Latin America, but they also will lead to even more severe food shortages and poverty in parts of Africa, according to an international report released Thursday.

Commissioned at a time of food riots and concerns about shortages, the 73-page paper by the United Nations' Food and Agriculture Organization and Paris-based Organization for Economic Cooperation and Development lends authority to conclusions about the lopsided impact of the current run-up in food prices that many analysts in the sector have been reaching.

Emerging economies like China, Indonesia, Brazil and Argentina will benefit most from higher prices, which create an incentive for their farmers to boost production, the report says.

Asian and Latin American farmers typically get only half the yields of their American and European counterparts. They are catching up by investing in modern seed, equipment and fertilizer -- driving up prices for those components. Those improvements, for example, will drive up global wheat production to 689.4 million tons by 2017 from 602 million tons this year, the report says.

World trade is expected to rise at least 20% for most agricultural commodities, driven by exports from the developing world. "The epicenter of global agriculture will further shift from [rich nations] toward developing countries," the report said. "By 2017, these countries are expected to dominate production and consumption of most commodities, which the exception of coarse grains [corn, oats, barley], cheese, and skim-milk powder."

Food inflation's biggest losers will be the world's least developed countries, mostly located in Africa, according to the report. Their farmers tend not to be "linked to markets," and can't afford investment, so they can't increase revenue. These countries' non-farming poor will fare even worse. "Higher prices … will push more people into undernourishment," creating a need for massive humanitarian aid, the report said.

The recent food commodity price spikes are partly the result of dry weather in Australia and France. Prices will fall back as rain returns, the report said, but remain higher than in the past. Wheat, for example, will level off around $230 per metric ton, down from an average of $318 per ton this year, but higher than the $167 averaged between 2002 and 2007. Rice, corn and dairy products will follow a similar trend.