Food prices rose 6 percent last month to 213 points in response to the devastating drought in the United States, hot weather in Russia and erratic rains in Brazil, according to the latest statistics from the U.N. Food and Agriculture Organization (FAO), released this morning.
Drought photo courtesy of Emily Penguin
The July jump follows three months of price declines but still fails to break the record for high prices set in February 2011 at 238 points. The National Oceanic and Atmospheric Administration announced yesterday that July 2012 had made history as the hottest month ever on record in the United States.
Global corn prices rose 23 percent, following widespread drought damage in the American Midwest. Wheat prices rose 19 percent as a result of extreme heat in Russia and other former Soviet states. The wheat index also increased because more livestock farmers are using the grain for animal feed in a time of tight corn supplies.
Sugar prices increased by 12 percent, due to inconsistent spring rains that made harvesting sugar cane difficult in Brazil, the world's largest sugar exporter.
International prices for rice -- the grain essential to much of the world's caloric needs -- remained largely unchanged. The FAO recently lowered its predictions for global rice output in 2012, given the low level of monsoon rains in India. However, the effect on rice prices is uncertain because of large existing stocks and predicted production gains in China, Indonesia and Thailand.
"If anything, rice prices may well go down in the next few months, as Thailand is expected to sell large volumes of rice from its government stocks between now and October, when it will need the storage space for the new crop," said Concepcion Calpe, a senior economist with the FAO.
In contrast to grains and sugar prices, the price of meat dropped slightly. The price of dairy products remained unchanged.
While the livestock sector has not raised the price of meat, it is feeling the squeeze of high corn-based feed prices and will eventually need to pass costs to consumers in the next few months, explained Calpe in a previous interview (ClimateWire, Aug. 1).
Are biofuels a culprit?
The Food Price Index reflects international trade prices of food commodities, rather than the price at the supermarket, said David Hallam, director of the Trade and Markets division at the FAO. Eventually, these prices trickle down to local markets, but the length of time that takes varies from place to place.
"The more import-dependent and open the economy, the quicker the transmission," said Hallam. "Stocks can insulate domestic prices, too. Transmission can be greater into urban areas than into rural areas."
In the United States, the drought has raised renewed concerns that corn-based ethanol is unfairly competing for corn with food and animal feed, with livestock industry groups vehemently requesting the Obama administration to lower the federally mandated volume of corn ethanol for this year. Members of Congress have offered support for cattle ranchers, pig farmers and chicken raisers and have asked U.S. EPA to waive the mandate (ClimateWire, Aug. 3).
Corn ethanol groups maintain that the drought -- not biofuels -- is what is driving up feed prices. A recent analysis by Iowa State University agricultural economist Bruce Babcock found that the ethanol mandate would only have a modest effect on corn prices in the current drought (ClimateWire, July 26).
Humanitarian group Oxfam International called the Food Price Index "the same global alarm that's been screaming at us since 2008," a year that experienced extreme food price volatility.
"These new figures prove that the world's food system cannot cope on crumbling foundations. The combination of rising prices and expected low reserves means the world is facing a double danger," said Oxfam spokesman Colin Roche. "World leaders must snap out of their lazy complacency and realize the time of cheap food has long gone."
Investments in smallholder agriculture, a reversal of biofuel mandates across the globe, and aggressive action to curb climate change are imperative, Roche said.
The U.S. Department of Agriculture tomorrow will release its World Agricultural Supply and Demand Estimates report, another indicator of global food prices. The World Bank's Poverty Reduction and Equity unit is expected to release its own food price analysis later this month.
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