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Send  Print  Share  RSS  Twitter  09 Dec 2009

Food prices on the rise again – UN report

Johannesburg, Dec 9 (I-Net Bridge) – Global food prices are on the rise again, with the Food and Agriculture Organisation of the UN (FAO) Food Price Index registering four straight monthly rises.
A rise in food prices when combined with administered price inflation of 11% year-on-year (y/y) in South Africa will certainly resonate negatively on the declining inflation rate as power utility Eskom is set for another 35% tariff increase.
However, market conditions are different from those that triggered the food price crisis that started two years ago, FAO said in its December Food Outlook report published on Wednesday.
The food basket is composed of cereals, oilseeds, dairy, meat and sugar.
The index averaged 168 points in November, the highest since September 2008. That was still 21% below its peak in June 2008. Prior to the price spike of 2007/08, the index never exceeded 120 points and, for most of the time, was below 100 points.
"At the onset of the price surge in 2007, FAO identified a number of possible causes contributing to the price rise: low levels of world cereal stocks; crop failures in major exporting countries; rapidly growing demand for agricultural commodities for biofuels and rising oil prices," the FAO report said.
"As the price strengthening accelerated, several other factors emerged to reinforce the upheaval; most importantly, government export restrictions, a weakening United States dollar and a growing appetite by speculators and index funds for wider commodity portfolio investments on the back of enormous global excess liquidity. What made the 2007/08 price spike exceptional was the concurrence of so many factors culminating in an unprecedented price rally and the fuelling of volatility."
Food and non-alcoholic beverages makes up 15.68% of SA`s headline CPI index and recorded a level of 8.3% in July 2009. Headline consumer food prices dipped to 7.6% in July 2009 from 16.1% in January. In October the food and non-alcoholic component measured a 5.3% y/y increase, among the lowest on offer as overall CPI headed below the 6% upper limit to 5.9% y/y.
It was the first time in 30 months that CPI had been back in its target range, By all accounts, it may not stay there too long.
By Evan Pickworth
I-Net Bridge.
Copyright 2009 I-Net Bridge. All rights reserved.

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