UN warns of food inflation effects

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Javier Blas, FT Syndication Service
LONDON: Rising food prices are likely to force developing countries to follow Russia's example and impose retail price controls to avoid social unrest, the United Nations' top agriculture official has warned.
Jacques Diouf, director-general of the UN's Food and Agriculture Organisation (FAO), said prices had become an "even more serious problem" in the past few weeks as wholesale increases began to be passed on to consumers.
"Many [countries] will have to take hard decisions because of the impact of food prices," Mr Diouf told the Financial Times. "In some countries there will be price controls, some will scrap import tariffs on food to minimise the impact of rising costs and others will increase food subsidies."
Russia is introducing controls on some basic foods in an effort to prevent spiralling prices from denting the Putin administration's popularity ahead of parliamentary polls in December. The country's biggest food retailers and producers reached an agreement to freeze prices at October 15 levels on selected types of bread, cheese, milk, eggs and vegetable oil until the end of the year.
Morocco recently cut wheat import tariffs and Egypt has increased food subsidies. Food price inflation in developing countries has risen in the past year to a rate of about 11 per cent while non-food inflation runs at a rate of about 7.0 per cent, according to International Monetary Fund (IMF) estimates.
Russia's move is the latest sign of surging agricultural prices becoming an international political issue. Food prices are rising - in some cases to record highs - on strong demand from developing countries; a rising global population; frequent floods and droughts caused by climate change; and the biofuel industry's appetite for grain.
"If prices continue to rise, I would not be surprised if we began to see food riots," Mr Diouf said, noting that in the past year, Mexico, Yemen and Burkina Faso had all witnessed social unrest over high food prices.
The FAO's food price index has risen to its highest level since it began in 1990. Wheat and milk prices reached a record high this summer while other agricultural commodities, such as corn and meat, are trading well above 1990s averages.
The FAO estimates that low-income, food-importing countries will spend about $28.1bn between July 2007 and June 2008 importing staples such as wheat, rice and corn. This represents a 15 per cent rise from the year before and double costs in 2000.
At the FAO's annual meeting in Rome next month, Mr Diouf will propose a "high-level conference on world food security" that would aim to agree on measures to cool down rising food prices.