Food Inflation in Egypt Back on Agenda as Prices Rise

Global food prices rose in March for a third successive month, driven by gains in grains and vegetable oils, the United Nations' Food and Agriculture Organisation said, putting food inflation firmly back on the economic agenda. Food prices hit record highs in February 2011 and stoked protests connected to the Arab Spring wave of civil unrest in some north African and middle eastern countries. They then receded but started to grow again in January.

The index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 215.9 points in March, up from a revised 215.4 points in February, FAO data showed. Its Cereal Price Index averaged 227 points in March, up from February, with maize prices showing gains, supported by low inventories and a strong soybean market, the FAO said. "You can see prices in the near term rising even further," FAO's senior economist and grain analyst Abdolreza Abbassian told Reuters before the index update.

The FAO also confirmed its earlier forecast for world wheat output to fall 1.4 per cent from last year's record crop to 690 million tonnes in 2012. High oil prices have fanned inflationary concerns since the start of this year. Consumer prices in the 17 nations sharing the euro were up 2.6 per cent in March from a year ago, despite the region's stumbling economy. "The food price index has an extremely high correlation to oil prices and with oil prices up it's going to be difficult for food prices not to follow suit," said Nick Higgins, commodity analyst at Rabobank International.

Energy prices affect the production of fertilizers as well as costs related to food distribution and farm machinery use. "We really saw the (food index) declines in Q4 2011 as being anomalous and related more to sell offs from the threats posed by the European macroeconomic situation rather than agricultural fundamentals," he said. A U.S. government report last week with lower than expected estimates of grain stocks and reduced soybean and wheat plantings, added to concerns about global grain supplies, driving a rally in U.S. and European grain futures.

Corn and soybeans are set to be the major drivers on world grain markets until new crops are harvested. Strong price swings are expected due to weather changes in major producing countries, Abbassian said. More price volatility could come if U.S. farmers decide to plant more soybeans after being lured by high prices, he added. U.S. soybean futures rose about 7 per cent in March and gained about 17 per cent in the first quarter of this year spurred by concerns about tight supplies as drought hit South America and smaller U.S. plantings. But FAO's Abbassian said prices could fall in the second half of this year with new crops easing market tension and driving full-year average prices below the record levels of 2011.