US drought, food prices fan fears of new crisis

City A.M. Reporter
Global alarm over a potential repeat of the 2008 food crisis escalated after data showed food prices had jumped 6 per cent last month and importers were snapping up a shrivelled US grain crop, helping drive corn prices to a new record.

Ahead of a critical government report on Friday on the state of the US corn and soybean crops, which have been decimated by the worst drought in over five decades, the United Nation's food agency warned against the kind of export bans, tariffs and buying binges that worsened the price surge four years ago.

"There is potential for a situation to develop like we had back in 2007/08," the Food and Agriculture Organisation's senior economist and grain analyst Abdolreza Abbassian said.

"There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn't happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible."

Adding a further risk of strain on global food supplies, Japan's official weather bureau said today its climate monitoring data and models indicated the El Nino phenomenon had already emerged and was likely to last until winter.

So far, most governments have refrained from trade intervention. Russia's deputy prime minister said this week he saw no grounds to ban wheat exports, as the country did in 2010, but he did not rule out protective export tariffs after the end of the 2012 calendar year.