Monday, March 3, 2008

Blue light special: Food production will increase in 2008, but don’t expect big price breaks

While food cereal production is expected to skyrocket in 2008, the UN’s Food and Agriculture Organization predicts that world food prices should remain at record highs for the next few months. That’s because the underlying causes for these elevated food prices – high energy and fertilizer prices, demand for biofuel in industrialized countries and low food stocks – will prevail in the medium term, says the World Bank.

First, the raw numbers. In the past five years, fertilizer prices – which account for 30 cents of every dollar charged for grains – have seen price increases of 150 percent. At least one-quarter of the U.S. maize crop went to biofuel production – and that amount is supposed to climb. Also, conservation programs in both the European Union and United States has cutback production, says the World Bank.

The balance sheet for the 2007 season across West Africa was generally positive. FAO estimated that cereal production was around 12 percent higher than the five previous harvests. Only Senegal, Cape Verde, northern Nigeria and to a lesser extent, northern parts of Ghana, saw production declines.

However, because West Africa’s food markets are very integrated, any reduction in Nigeria – the continent’s most populous country – means demand throughout the region could rise, sending prices even higher. This seems to be the case in the eastern part of the region as Nigeria’s immediate neighbors have indeed seen higher food prices than elsewhere. On the region’s western rim, food prices remain high, but they are driven mainly by the costly international food market.

“Throughout the subregion the impact of high food prices will be more severe in localized areas where yields were severely reduced by delayed rains or floods,” the FAO said. “In these areas populations may require assistance.”

While the FAO’s reports were written before recent demonstrations against high prices in Cameroon and Burkina Faso, the UN body reported that Benin and Senegal have begun implementing price controls and waiving certain tariffs.

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