A new record was set by the UN’s Food and Agriculture Organization’s (FAO) food index in February, which has increased consecutively for the last 8 months to its highest value since the index 1990, when the FAO started monitoring prices. The food index hit 236 points, gaining 2.2% from January and 34% from February a year ago.
Gains were recorded for all commodity groups but one of those followed by the index, which include cereals, dairy, oil/fats, and meat on the gaining side and only sugar on the declining side.
“Unexpected oil price spikes could further exacerbate an already precarious situation in food markets,” said David Hallam, Director of FAO’s Trade and Market Division. “This adds even more uncertainty concerning the price outlook just as plantings for crops in some of the major growing regions are about to start,” he added. (Read On The Verge Of A Global Food Crisis).
The cereal index, which hit its highest level since 2008, was the focus of the report, as the FAO estimated that a tightening market on the back of a weak year for cereal production in 2010 will put additional pressure on prices. “International cereal prices have increased sharply with export prices of major grains up at least 70 percent from February last year,” read the release.
Commodities have been on a tear for some time now, with Bloomberg reporting that the assets group has been “in [its] longest winning streak since ’04” beating stocks, bonds, and the dollar. Along with surging oil prices, fueled by the crisis in North Africa and the Middle East (MENA), commodities have been fueling inflation around the emerging world, leading to overheating and social and political instability. As emerging markets from Brazil to China have begun tightening, the whole MENA region has been engulfed in violent political unrest that has threatened to create a vicious cycle of inflation fueled by higher prices fueling social unrest which in turn fuels higher prices.
The situation has prompted experts to warn of a global food crisis reminiscent of the spike in food costs that in 2008 caused various riots. Fears that higher oil prices and further social unrest could derail the global economic recovery have been augmented by the prospects of tightening in developed economies, as central bankers from Jean-Claude Trichet to Ben Bernanke have expressed fears that inflation could be a more serious threat than had been expected. (Read Heather Struck’s take on the ECB, Trichet Cites Inflation Fears, Adding Strength To Euro).
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