UN warns of food price unrest

Financial Times, Sept. 6, 2007

Developing countries face serious social unrest as they struggle to cope with soaring food prices, inflation that shows no signs of abating, the United Nations top agriculture official has warned.

Jacques Diouf, director-general of the UNs Food and Agriculture Organisation, said surging prices for basic food imports such as wheat, corn and milk had the potential for social tension, leading to social reactions and eventually even political problems.

Mr Diouf said food prices would continue to increase because of a mix of strong demand from developing countries; a rising global population, more frequent floods and droughts caused by climate change; and the biofuel industrys appetite for grains.

That combination of factors would most likely lead to increases in food prices, Mr Diouf told the Financial Times in an interview.

Signs of the social unrest these prices could cause were seen in Mexico this year where mass protests were triggered by rising corn prices. Mr Diouf said food represented about 10-20 per cent of consumer spending in industrialised countries, but up to 65 per cent in developing nations.

If we continue to see an increase in their [food] prices and in their import bill for food, there is a serious potential situation, Mr Diouf said.

The warning comes as wheat prices are at a high, forcing developing countries such as India and Egypt to pay record prices for their food imports in what cereal traders described as panic buying to beef up reserves.

Wheat prices this week rose to a record $8.86 a bushel in Chicago, up about 60 per cent since January. Dairy product prices have also setting records, while other commodities, such as corn and soyabeans, are trading well above their historical averages.

Mr Diouf said although the biofuel industry directly increased the consumption of only a handful of agricultural commodities, such as corn and rapeseed, its effect spread to other food products because less acreage was devoted to non-biofuel crops and the cost of feeding livestock with grain was pushed up.

The biofuel industry is a new factor creating demand for food for a non-food use, he said.

Fears about the inflationary impact of biofuels on global food prices have prompted Cargill, the worlds largest agricultural company by revenues, to question the White House-led push for an increase in ethanol production through tax subsidies.

Copyright The Financial Times Limited 2007