Again warnings on increase in food prices

In just four years a potential food prices crises is in the offing. Sensing the approaching crisis the Rome-based Food and Agricultural Organization (FAO) took the unusual step of publishing its report warning of expected rise, though it still below the all-time high that it reached in February of last year.
The intention is clear to raise the red flag among a world embattled politically and economically in every front. Food crisis is more than any other political or economic problem. In itself it will be a major contributor to already existing problems.
According to FAO its July index rose 6 percent from the previous month. It is based on a basket of five products - cereals, oil seeds, meat, dairy and sugar. As an example cereal rose by 17 percent, while sugar jumped up 12 percent.
Reasons behind the jump vary from rains and climate changes in Brazil, a severe drought in the United States that has not been seen for the past six decades, production difficulties in Russia and Kazakhstan and restrictive production and export policies. It was interesting to note in the FAO announcement for the world to resort to sound policies and avoid panic and restrictive mentality.
Part of the 2008 food crisis was the export ban applied by countries like India or Argentine raising export taxes to higher levels.
Rising food prices are expected to contribute directly to the ongoing economic crisis that has been engulfing the world more or less for the past four years and continue to do so with no assuring signs in the near future bearing in mind the high unemployment rate experienced in the United States and the rest of the western economies that are specially hit in the euro zone, besides the rest of world economies that usually used to register high growth rates are generally slowing down for the first time in more than a decade.
The expected impact of rising food prices in worsening the world economic situation could be found in two areas: Less money will be injected in the economy as the basket of food will consume bigger chunk of everybody's spending, so other sectors of economy will be facing slack demand. Secondly, food prices by their very nature are one of the bigger contributors to rising inflation. Central bankers, who watch nervously inflation rates, will be more tempted to hike interest rates, thus endangering the meager chances of accelerating economic recovery.
Already forecast from top economic clubs like the International Monetary Fund is less and less upbeat about prospects of the world economic outlook in the near future.
Aside from direct economic impact on the current economic situation, the rising food prices issue brings to fore two additional topics — how to fight hunger and how to deal with the rising trend of farmland purchases.
According to Oxfam, an estimated 900 million people are expected to be affected by hunger because of the rise in food prices. It urged British Prime Minister David Cameroon to kick-start an initiative to reform policies in this regard given the impact of hunger in the turmoil that is engulfing the world already in terms of civil wars, displacement and so on.
But more serious is the trend that became clear over the past few years of buying or renting farmlands to ensure access to food supplies. Since capital is a movable asset, it is easier to go around the globe shopping for arable land assets in other countries that have some abundance. According to the Washington-based International Food Policy Research Institute (IFPI), setting flagships in other countries rose between 2006 and 2009 where between 15 million to 20 million hectares have been subjected to farmland transaction and those deals were estimated to have cost between $20 billion to $30 billion.
The main rationale behind these deals is generally centered on two points: It attempts to secure food supplies to import countries and moreover, it should help the sellers with new technology, management and resources to enable farm landers in these places to produce more and better output. The Economist magazine once said that if those deals manage to increase output and produce on average two tons of grain per hectare, that will be twice the average African production, though still less than that of the production average of Europe and the United States. That in theory should help close somehow the gap in supplies and eventually help reduce food prices.
For that to happen and have a lasting impact of these farmland purchases, buyers need to concentrate on two issues: One is to try and conduct on the spot agricultural research plants with the aim of improving output and end up with a better outcome of the marriage between natural resources, capital and expertise of both import and export countries. The other and more important point is to apply corporate social responsibility. In most cases, countries with abundant natural resources like land and water, are suffering from political, economic and social instability to the extent that they fail to feed their own people. Buyers of assets should bear that in mind and they need to adopt policies to ensure that part of the product in addition to other services are benefiting the population of these countries so as to ensure a long-lasting relationship.