Unstable food markets continue to threaten cereal prices

By Lindsey Partos

- Last updated on GMT

Related tags 2007–2008 world food price crisis

Price volatility in grain markets and food security took centre stage at the first World Grain forum in St. Petersburg with Russia's President Medvedev underlining the "extremely unstable situation" in global food markets.

In an address to over 1000 attendees this weekend, Medvedev urged grain suppliers to co-ordinate efforts to mitigate price spikes and to develop mechanisms to “overcome”​ the imbalance between supply and demand.

"Last year's sharp rise in food prices hit the poor hardest, since they spend up to 80 per cent of their budget just to feed themselves. It is therefore necessary to reach a common understanding of this situation,"​ said the president, who first mooted the idea of the forum last June with leaders of the Group of Eight.

Prices for staple food commodities leapt by as much as 60 per cent between 2006 and June 2008. In a bid to nail down the key factors in this price rise phenomenon, a recent report from the US Department of Agriculture (USDA) particularly underlined the pivotal role of diminishing global stock levels in the price equation.

Added into the mix, suggests the USDA, were: Adverse weather, the rapid expansion of biofuels production, a rise in meat consumption, an increase in agricultural costs, protective policies and the contribution speculators on financial markets made to price volatility on food commodity markets.

With one in six persons starving in the world today, FAO Director-General Jacques Diouf, also speaking at the forum, attested that such high food prices had caused the number of hungry people in the world to soar by 115 million, with the financial crisis aggravating the situation even more.

“Preliminary results of work conducted by FAO show that the financial and economic crisis could drag more than 100 million persons into chronic hunger,”​ said Diouf.

The FAO Director-General further underlined the role the international trade system has played in exacerbating price spikes, which have resulted in more hunger and poverty and "also have to be changed".

According to the FAO, as of last month, thirty-one countries are in a situation of food crisis requiring emergency assistance. Twenty of these are in Africa, nine in Asia and the Near East and two in Central America and the Caribbean.

On international trade, Medvedev voiced the same concerns: "Excessive protectionism harms sustainable development...and results in speculation in the grain market,"​ said the Russian president.

Russia's ambitions for world grain exports

The Russian premier's discourse will also fuel the not-so-idle chatter concerning Russia's ambitions for the world grain stage.

Viewed by some as a potentially diplomatic weapon, like energy, Russia has steadily boosted its grain output in recent years. Indeed, a record crop last year propelled the country into the top three global wheat exporters.

At the forum, Medvedev confirmed their ambitions: "Russia intends to strengthen our position in the world grain market, in both the financial and the organisational sense."

And on Sunday, the Russian agriculture minister is reported as stating the country intends to increase its grain exports "from 20 million metric tons in 2009 to 40-50 million metric tons in 10-15 years".

To read further coverage from the World Grain forum and read about how the Russian infrastructure could be a barrier to growth click here​.

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