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Food Prices:High for next 10 years

22/05/2008

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Despite some recent signs of easing in food prices, a new report due out next week considers that prices overall will remain higher than they were for the next 10 years, according to this Financial Times article.

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.

Note this reference to bio-fuels. Now it is unclear whether this report takes into account the impact on food supply of changes in the set aside regime in the EU which will potentially release 5 million hectares of land into production.

What is clear that policies adopted by the EU and the USA do not help.

The item comments further:-

“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”.

and concludes:-

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.

It remains to be seen what this will mean in economic terms for New Zealand’s farming industry.

However, the efficiency of NZ farming is such that there may be at least 2 immediate benefits:-

  • greater interest in FTAs from countries like Japan
  • very considerable opportunities in the provision of advisory services to countries seeking to improve their agriculture
2 Comments
  1. 23/05/2008 21:34

    There’s two plusses here.. good prices for our food as noted, but also, hopefully continued interest in developing biofuels in the US. The US is slowly recognising the problems of corn based biofuel and is looking at the more sustainable biofuel from cellulose. Big money is going into the enzime process and that could be very beneficial here because of our huge wood surpluses.

    It would be much better to ride on the back of this research than try and develop it here. Sure we may have to pay big money for the enzimes developed and some of the other technology, but the payoffs could be handsome and the lead time involved allows us to monitor the medium/longer term price of oil and see if it drops very significantly like in the 1980s.

    JC

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  2. 23/05/2008 09:46

    “However, the efficiency of NZ farming is such that there may be at least 2 immediate benefits”

    Don’t forget the higher export prices – it took our terms of trade to the highest level since June 1974!

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