The State of Food Insecurity in the World 2011, discusses high and volatile food prices

'The State of Food Insecurity in the World 2011', discusses high and volatile food prices

The Food and Agriculture Organisation (FAO) has said that global food price volatility and high commodity costs are likely to continue and possibly even increase as demand rises due to economic growth.

A United Nations' report published this week, 'The State of Food Insecurity in the World 2011', identified high and volatile food prices as "major contributing factors in food insecurity" at global level and "a source of grave concern" to the international community. The annual report is jointly produced by UN agencies, FAO, International Fund for Agricultural Development and World Food Programme.

The report notes that many countries still face severe problems following the world food and economic crisis of 2006 to 2008, adding that demand from consumers in "rapidly growing economies" will increase with the growing population and further growth in biofuels will place additional demands on the food system.

Moreover, food price volatility could increase over the next decade due to stronger links between agricultural and energy markets and more frequent extreme weather events, the report notes.

As a result, in the longer term, the FAO believes higher prices could cause some importing countries to invest in their agriculture and reduce imports, or even become exporters.

In contrast however, Bernstein Research analyst Alexia Howard, believes US beverages companies are likely to see "a fairly substantial" decrease in commodity cost pressure in 2012.

"Based on the strict application of our regression methodology, we expect input cost inflation for US beverages companies to decelerate (or run negative) in CY12 as commodity costs roll over," Howard said. "We estimate US [companies] will see input cost inflation of +1.5% in CY12, down significantly from what we've seen in the past year."

Indeed, in September, sugar prices dropped thanks to positive production prospects for Europe, India, and Thailand. The FAO Sugar Price Index averaged 379 points, down 3.8% from August. Better than expected sugar output in Brazil, the world's largest sugar producer, also contributed to the easing in prices.