Rising prices of agricultural products on international markets: structural problem

The unprecedented increase of  agricultural products prices the international market is a global phenomenon which results from the rising purchasing power in emerging countries like China and the development of research on clean energy, while the speculation on raw materials are well underway.

The index of the United Nations Food and Agriculture "FAO", which determines the prices of foodstuffs in the World, shows an increase of 40% over last year.

On the top of foodstuffs whose prices rose cmes the wheat, which has recorded Monday, a price increase of 2.2%, after that the U.S. Department of agriculture has announced that U.S. wheat reserves used in the manufacture of bread and cakes cut by 25% this year compared to last year. At the same time, the Canadian Institute of  Statistics declared that Canadian wheat stocks have fallen by 30% over last year.

Thierry Le Francois, an analyst with Natixis and specialist in the affairs of raw materials, said that the price of wheat has increased on world markets since January 2006 by 287%, while corn prices have increased by 149%, soybeans (129%) rice (60%), coffee (139%) and fruit juice (23%).

In this context, Chris Leboly, a strategic expert in inflation affairs at the Swiss bank "UBS" said that this phenomenon began two years ago and has accelerated in 2007. He explains that the changing structure of life in the emerging countries is the origin of this phenomenon. For example, the Chinese depend a food system based increasingly on meat, which requires raising more livestock and, therefore, increasing demand on the corn, wheat and soybean as food for the livestock, which leads to an increase areas cultivated by such crops.

They believe that climate change in the world during the last two or three years had a significant impact on shortage of supply of these crops, isuch as drought and poor Wheat production in Australia.

Thierry Francois pointed out that the "agricultural policy" pursued by the European Union led to the
reduction of cultivated areas. He sees that European authorities bet on a decline in demand., which was, in his point of view a wrong calculation.

For experts, one of the reasons of rising prices of raw materials is the strong trend in Europe and the USA to use clean energy. These countries are working for the production of biofuels from cereals and oil, which causes pressure on prices due to the strong demand. This trend has become a competition for food consumption.

According to economists, the risks of a global economic slowdown Because of the crisis in mortgages to high-risk "Subprime", which has hit the banking sector last summer, has contributed to the problem. The raw materials, including foodstuffs, represent a shelter for investments in times of economic uncertainty. Leboly said that the upward trend of prices of crops pose a "structural problem" that can continue. An opinion shared by Thierry Francois, who believes that for lower prices, it is necessary to increase agricultural areas or return to a food system traditionally based on consumption of rice.

Some experts see that the realization of these solutions will not be possible as emerging countries continue to achieve high rates of economic growth that will strengthen the purchasing power. These experts indicate that GDP in China has registered an increase of 11% over last year.

In a study late last year, African Development Bank said that dispite the fact that Africa is the main source for most of raw materials in the world, African economies are threatened because of high prices of these materials, which has become a burden on consumers in the black continent characterized by rising poverty rates.

Meanwhile, in his report on the economic outlook in Africa, the Organization of Economic Cooperation and Development said that the development of new energy sources as alternatives for oil, such as biofuels produced from grain, will lead to increase the crisis in some developing countries, because it puts pressure on food prices and, therefore, a threat of  hunger in the future.