The world’s food import bill will drop this year by about a fifth as agricultural commodities trade well below last year’s all time highs, the United Nations’ Food and Agriculture Organisation said in a report on Thursday.
In its first forecast about this year’s food import bill, the FAO said the cost of importing agricultural commodities will fall to $790bn, down 22 per cent from last year’s record of $1,015bn. But it warned that the “deteriorating economic environment in which the falls are taking place could offset much of the benefit.”
“Eroding purchasing power through a combination of falling incomes and real exchange rates… afflicts the affordability of food, however cheap it has become on the international market place,” the FAO said on its biannual Food Outlook report.
In a statement, the FAO added that food prices remained high in many developing countries, and access to food by the poor also continued to be threatened by loss of employment, income and other effects of the global economic crisis.
This year’s food importing bill will be still the third highest ever, roughly at the same level of 2007, and well above the pre-food crisis levels of $350bn-$450bn a year.
The forecast of a drop in the world’s import food bill comes even as the price of food commodities such as soyabean, corn and wheat has surged this week to the highest level in eight months, rising 50 per cent from their December’s low.
But the FAO said that “in spite of strong gains in recent weeks, international prices of most agricultural commodities have fallen in 2009 from their 2008 heights.” It added: “Barring major crop setbacks… the food economy looks less vulnerable” this year.
The 2007-08 food crisis saw record prices for agricultural commodities such as wheat, rice, soyabean and corn, triggering food riots in at least 25 countries, from Mexico and Bangladesh to Senegal and Egypt. The crisis was the main factor behind the collapse of the government of Haiti, as people rallied against record rice prices.
Private sector analysts are less optimistic, pointing to falling supplies of soyabean – a key commodity to feed livestock – and a drop in the expected harvest of corn. With inventories still low by historical standards, any weather disruption could boost prices.
The combination of worries is propelling already prices. Soyabean and corn are now trading at the same level they did in January 2008 – about $12.00 and $4.50 a bushel, respectively, but well below last year’s records of $16.50 and $7.50. Wheat is lagging behind, trading at the level of October 2007 – at about $6.50 a bushel, but still far below the 2008 peak of $13.0 a bushel.
Bill Lapp, president of Advanced Economic Solutions, a US-based consultancy which advises leading food companies, says that labelling the current rise in prices as a new food crisis would be “too strong” an expression. But Mr Lapp, a former chief economist at ConAgra Food, the US company, added: “There are risks lying out there that make me concerned about where the agricultural market is heading.”
Among those, he mentions that the world is likely to emerge from the current economic recession with historically low stocks of agricultural commodities. At the same time, the recovery would see the same biofuel mandates and strong consumption from emerging countries such as China or India that were partly behind the 2007-08 crisis.
Courtesy: Financial Times
China is “actively considering” buying up to $50bn of International Monetary Fund bonds, the country’s State Administration of Foreign Exchange has said.
John Lipsky, IMF first deputy managing director, confirmed the Chinese proposal, which follows one by Russia to buy $10bn (€7.1bn, £6.2bn) in IMF bonds.
Friday’s statement by China said any investment would be made according to its usual criteria of “safety and reasonable returns”, but made no mention of Beijing’s wish for more power in IMF decision-making, in return for financial support.
Safe, which controls almost $2,000bn of China’s foreign exchange reserves, added it was ready to help the IMF explore more ways to raise finance.
Mr Lipsky said the Chinese and Russian proposals were part of a commitment made during the London G20 summit in April to augment IMF resources by $500bn, and that the IMF “absolutely welcomes” the commitments.
The IMF expects to submit a proposal in the next few weeks that would allow it to raise money through issuing notes or bonds.
The pledges by both countries seem to have some political motivations – both China and Russia make no secret of their desire to have a greater say in how the IMF commits money.
Vladimir Putin, Russia’s prime minister, proposed the money from Russia, for example, should be earmarked to help Ukraine pay for Russian gas, avoiding a stand-off with Kiev over the issue of gas payments which crippled supplies to Europe in January.
Mr Lipsky said it would be against IMF guidelines to get involved. “The ongoing disputes between Ukraine and Russia are commercial issues,” he said.
“We wouldn’t enter directly into a commercial arrangement but of course our programme contemplates the external funding needs of Ukraine. Our programme is always predicated on helping our member countries meet balance of payments needs. But we would not be involved directly in a commercial transaction.”
Asked if the programme to Ukraine could be increased at all he said: “Never say never, but it would depend on the evolution of events.”
Meanwhile, earlier this year, China’s central bank governor caused a stir in global currency markets when he proposed replacing the US dollar as the world’s reserve currency with Special Drawing Rights, the IMF’s unit of account.
Zhou Xiaochuan also said SDRs should be based on a basket of currencies, including China’s renminbi.
Chinese officials have indicated that at least some of the IMF bonds it will buy will be in SDRs, which would help to diversify its US dollar-dominated foreign exchange reserves.
Courtesy: Financial Times
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