Little relief for food prices in 2004

Related tags Food prices Wheat

With shortfalls in grain harvests progressively worsening over the
past four years, closing the gap will not be easy, says Lester
Brown at the Earth Policy Institute. He predicts this year may
witness another shortfall, bad news for food makers and ingredients
firms currently knocked by rising global food commodity prices,
writes Lindsey Partos.

The four harvest shortfalls have dropped world carryover stocks of grain to the lowest level in 30 years, amounting to only 59 days of consumption - a 70-day level is considered the minimum needed for food security. As such, the food industry continues to be hit by wheat and corn prices at 7-year highs, rice at 5-year highs and soybean prices reaching 15-year highs.

Brown​ questions whether the world's farmers can close the gap and alleviate mounting food prices. In addition to the usual uncertainties farmers face, they must now contend with two newer trends - falling water tables and rising temperatures. And if there is another large shortfall, grain prices will continue the rise of recent months, driving up food prices worldwide.

The production gains the industry needs this year is huge, writes Brown. Initiatlly world grain output in 2004 must increase enough to eliminate last year's shortfall of 105 million tons. In addition, there are an extra 15 million tons required to feed the 74 million people added to the global population this year.

Maintaining the current precarious balance between production and consumption will require this year's grain harvest to grow by 120 million tons. But modestly boosting food security will require a total gain of 150 million tons.

Unfortunately, the chances of increasing it by even 120 million tons appear to be less than one in ten. A fifth consecutive year in which the harvest falls short of consumption seems likely. The question is : how much will it fall short and how will it affect world food prices?

In estimating this year's grain harvest, wheat crop is easeier to gauge than rice or corn simply because the harvest is dominated by the northern hemisphere's winter wheat, which was planted last autumn.

Among major producers, the planted area compared with 2003 is down in China, the United States, Russia, and the Ukraine, but up in India and the European Union is reporting little change overall. Given the expected recovery of wheat yields in Europe and India from the heat- and drought-reduced levels of last year, this year's world wheat crop could easily be up by 35 million tons.

Because rice is water dependent, neither the planted area nor yields vary much from year to year. The only big increase this year is likely to come in China, where the government is making an all-out effort-including higher government procurement prices-to reverse a four-year decline in the rice area.

Early estimates indicate China's rice crop could rise from 115 million tons to 122 million tons this year. Allowing for modest gains in other rice-producing countries, an increase of 12 million tons over last year's harvest appears within reach.

Estimating the world harvest of corn, used mostly for feed, starts with the United States-which accounts for 40 per cent of the crop. The US area planted to corn is expected to be roughly the same as last year. Since the US corn harvest is largely rainfed, and thus vulnerable to both heat and drought, yield can vary widely. It is doubtful that American farmers can match last year's record corn yield, but some industry observers assume they can and that better crops elsewhere will be enough to raise the 2004 world corn crop by 10 million tons.

For the minor grains-barley, rye, oats, sorghum, and millet - where production has been falling in recent years - Brown assumes a 3 million ton gain.

Combining the estimated increases of 35 million tons for wheat, 12 million tons for rice, 10 million tons for corn, and 3 million tons for other grains gives an increase of 60 million tons over last year's harvest. This is an improvement, but it would still leave a 60 million ton shortfall needed to close the gap.

Should the estimated 2004 shortfall materialise, Brown predicts two situations, either grain stocks will drop by 12 days of consumption, falling to an all-time low of 47 days, or food prices will rise and force a reduction in consumption.

In reality, the shortfall will be covered by a combination of declining stocks and rising prices for the food industry and consumer alike.

Reprinted with kind permission from the Earth Policy Institute​.

Related topics Suppliers

Related news

Follow us


View more