•  washington
• Monday, February 07, 2011
• Inter Press Service

As food prices rose for the seventh month in a row in January, contributing to recent popular unrest in the Middle East and a spike in commodities purchases by developing countries last week, some analysts are quick to make comparisons to the dry years of 2007-2008.

But others warn against panic and oversimplified predictions of an impending food crisis, which contribute to price volatility. 'It is important to underline — and we've been trying this rather unsuccessfully — a high food price index doesn't necessarily mean a food crisis,' Abdolreza Abbassian, senior economist at the United Nation's Food and Agriculture Organisation (FAO), told IPS in a telephone interview.

After a crisis in 1974, world food prices fell steadily over the following decades and hit an all-time low in the early 2000s. But beginning in 2005, food prices soared, ushering in the crisis of 2007-2008. In post-mortem studies and short-term forward-looking simulations, including those conducted by the United States Department of Agriculture and jointly by the Organisation for Economic Co-operation and Development and the FAO, researchers largely concluded that the steep prices would continue.

'It is reasonable to expect prices to remain high in the years to come (especially as economies recover from the financial crisis),' stated a 122-page report published last year by the International Food Policy Research Institute (IFPRI) titled 'Reflections on the Global Food Crisis'. Although the high prices documented today were essentially predicted, similarities to 2007-2008 seem to be fuelling observers' panic. What is similar this time around?

'The underlying drivers of the 2007-2008 crisis were interlinked macro factors: a weak U.S. dollar, rising oil prices, increased bio fuels demand and strong economic growth worldwide,' Derek Headey, senior researcher at IFPRI and co-author of 'Reflections', told IPS in an e-mail interview.

'What is broadly the same [now] is that the macroeconomic environment is still conducive to higher prices and whenever you get higher prices, it only takes some small shocks to set off short-run volatility,' he explained. The U.S. dollar remains weak, oil prices have exceeded 100 dollars per barrel, high demand for biofuels continues and strong growth in China, India and other large developing countries are creating some inflationary pressures, Headey noted.

Some short-term characteristics also seem to be similar. Once prices surged in 2007, interlinked factors created a food price bubble. The most important of these were crop failures, trade restrictions and panic buying — and likely speculation and hoarding, although those are difficult to measure — he argued.

Ongoing droughts in places like China, Somalia, Kenya and Niger threaten food security and unusually large wheat and rice purchases by Algeria and Bangladesh, respectively, last week — and last month's announcement by Saudi Arabia of plans to double its wheat supply — are leading some to fear the prospect of panic buying.

© Inter Press Service (2011) — All Rights Reserved. Original source: Inter Press Service

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