FarmPolicy

August 23, 2014

Commodity Prices- Food Costs; EU CAP Transparency; Doha

Commodity Prices- Food Costs

Javier Blas, writing yesterday at the Financial Times Online, reported that, “Rice prices surged to a 34-year high yesterday as the Philippines awarded a tender for the staple at an average price of $708 a tonne, up almost 50 per cent from the price it paid in late January.

“The sharp rise reflects a market suffering from tightening supply after important producers India and Vietnam this month both imposed restrictions on rice exports. Supplies from Thailand are also low, traders said.

“The jump in rice prices would exacerbate rising inflation in Asia and risks triggering social unrest, analysts said. The Philippines, one of the world’s biggest rice importers, is particularly exposed.”

The FT article explained that, “European brokers quoted an indicative price for high quality Thai rice, a global benchmark, of about $640 a tonne, up from $515 in late February. In the past three months, the price has surged about 72 per cent amid low supplies and robust demand… [T]hai rice prices last year averaged $334 a tonne, according to the UN’s Food and Agriculture Organisation.”

In conclusion, Blas noted that, “India has also further restricted foreign sales of rice raising the minimum export price for non-basmati rice to $650 a tonne, up from $500 a tonne. The measure has, de facto, closed the export market, industry executives said.

“Vijay Sethia, president of the All India Rice Exporters’ Association said the step was aimed to restrict the outflow of rice from the country.”

Meanwhile, Megan Myers and Melanie Brandert reported in yesterday’s Argus Leader (South Dakota) that, “Skyrocketing wheat prices are making farmers happy but causing pains for some local restaurant owners

“‘It’s frustrating because it’s all happened within six months,’ said Mike Dinsmore, co-owner of the Bagel Boy shops in Sioux Falls. His flour costs have almost tripled since this time last year.”

The article stated that, “Poor wheat harvests in Australia and parts of Europe and the U.S. have caused Asian countries to buy up more American crops. Meanwhile, the American crop is shrinking because of federal incentives to grow corn for ethanol.”

With respect to the effect of the price of wheat on retail food prices, Ephriam Leibtag, an economist at USDA’s Economic Research Service, noted in a Monday audio clip from USDA’s Daily Radio Newsline (MP3- 0:25) that, “Wheat itself has gone up almost three times its price in the last six months or so, so the costs of making pizzas, and breakfast cereals, pastas and breads are all going up quite a bit. Now on average, those cereal and grain products only contain about six percent of raw ingredients, so it’s a small base number to start with, so the wheat in a loaf of bread will only be six cents on every dollar, but when it triples, its going to have a noticeable effect.”

In a related article, the Associated Press reported on Tuesday that, “With wheat prices topping $10 a bushel, the grain crop is fetching two or three times its historic price, and agricultural experts say it could be grown more widely in Oregon.

“It’s being touted as a crop to plant in rotation with grass seed.

“At a recent farm tour south of Albany, about 70 miles south of Portland, scientists and representatives talked about wheat, the price of which has risen along with other grains. Factors include farmers dedicating more land to growing corn for ethanol, and rising standards of living that enable countries all over the world to bid on American grain.”

With respect to commodity futures prices, the Associated Press noted yesterday that, “Wheat for May delivery lost 90 cents to $10.74 a bushel; May corn fell 20 cents to $5.2725 a bushel; May soybeans declined 50 cents to $12.57 a bushel.”

In a broader look at commodity and food price issues, Javier Blas and Jenny Wiggins reported on Monday at the Financial Times Online that, “John Beddington, Britain’s chief scientific adviser, had been in his job for just two months when he outlined an unnerving scenario for his new employers. The world, he argued earlier this month, faced an enormous problem – one on a par with climate change – that policymakers were nonetheless ignoring: food security.

“As prices for agricultural commodities, from wheat to milk, have surged globally with unprecedented speed, social unrest and hunger have emerged in different parts of the world, challenging rich and poor countries alike and forcing governments to consider a variety of measures to bring prices down. Long subject only to the disciplines of the market, producers now increasingly find themselves contending with higher import tariffs, export bans and price freezes.

“Rising food costs have also called into question government support for biofuels projects that divert needed arable land from food production, while putting pressure on many sceptical governments to review their opposition to genetically modified crops, which increase yields and drive down food prices.”

The FT article added that, “While Mr Båge [Lennart Båge, president of the International Fund for Agricultural Development, the United Nations] says that a common view on the solution has yet to emerge, many governments agree that support for biofuels and opposition to GM crops must be tempered by the reality that food prices have reached crisis levels. He points to a consensus that investment in agronomics, largely forgotten in the past two decades, would need to rise if the world wants to see a repetition of the ‘green revolution’ of the 1960s, when crop yields jumped thanks to the spread of irrigation, fertiliser and better seeds, depressing prices and freeing millions from hunger.”

Blas and Wiggins went on to point out that, “The danger, experts argue, is that many policymakers have a short-term view of the crisis and are pursuing short-term solutions that could prove harmful in the long run. In spite of dramatic warnings from institutions such as the World Food Programme – which is running out of money to feed the world’s poorest – many governments, particularly those facing elections, have so far merely attempted to buy time.

“Food-importing countries such as Russia and China have imposed retail price freezes on staples including milk, bread and eggs. Meanwhile, France and Australia have launched national inquiries into rising food prices, pressuring their largest supermarkets and food producers into absorbing cost jumps. Exporters of food such as Argentina and Kazakhstan are also taking action, imposing onerous foreign sales taxes or outright export bans to keep their local markets well supplied.

“The worry is that measures such as banning exports could eventually do more harm than good, because by depressing prices artificially they make agriculture investments less profitable and thus lower future production.”

The FT article also stated that, “Most governments now agree that the astounding surge in food prices last year – the cost of food rose almost 40 per cent globally, according to the United Nations’ Food and Agriculture Organisation, and has continued to rise this year – is structural, meaning that prices will not retreat to former levels. This is because newly wealthy consumers in countries such as China and India, who can increasingly afford to improve their diets, as well as the biofuels industry, are expected to maintain a rapacious demand for basic food commodities such as wheat, corn and soyabeans.”

In related research, the USDA’s Economic Research Service recently published a report entitled, “Convergence in Global Food Demand and Delivery,” which was written by Anita Regmi, Hiroyuki Takeshima, and Laurian Unnevehr.

The Abstract of the paper stated that, “Using food expenditures and food sales data over 1990-2004, this report examines whether food consumption and delivery trends are converging across 47 high- and middle-income countries. Middle-income countries, such as China and Mexico, appear to be following trends in high-income countries, measured across several dimensions of food system growth and change. Convergence is apparent in most important food expenditure categories and in indicators of food system modernization such as supermarket and fast-food sales.”

In the introductory “summary” portion of the report (page iii), the authors noted that, “Middle-income countries are beginning to resemble high-income countries in their food purchasing patterns at both retail and foodservice outlets. Middle-income countries appear to be following trends associated with high-income countries, with upper middle-income countries fast approaching the per capita expenditure and sales levels of high-income countries and lower middle-income countries also gaining.

“Analyses of food expenditures across 47 countries indicate significant convergence in consumption patterns for total food, cereals, meats, seafood, dairy, sugar and confectionery, caffeinated beverages, and soft drinks. That convergence reflects consumption growth in middle-income countries due to rapid modernization of their food delivery systems, as well as to global income growth.

“The convergence trends were faster in the early 1990s but slowed somewhat during the late 1990s and early 2000s, perhaps a result of slower income growth during the latter period. Convergence in total food expenditures, though, remains significant, particularly for meat, dairy, sugar, and caffeinated beverages.”

And on page iv of the introductory “summary,” the ERS report stated that, “Findings of convergence in food expenditures are important because they imply that demand for higher valued food products will continue to be strong in developing countries. As market opportunities for agricultural producers, distributors, and retailers grow in these countries, regulations and standards for food safety and quality will become increasingly important.”

In other news regarding commodity prices and food costs, Kris Maher reported in today’s Wall Street Journal that, “Add another institution to those getting squeezed by America’s economic crunch: soup kitchens.

“Across the country, groups that provide food to people in need are scrambling to make up for a loss of government-provided surplus items as commodity prices have soared. Surpluses have dropped as some commodities, like corn, are being turned into alternative fuels and others are going overseas as the weak dollar makes U.S. exports more palatable to other countries.

“At the same time, food banks and soup kitchens say that people struggling with mortgage woes, rising gas prices and layoffs are increasingly turning to them for help.

“To cope, food banks are being forced to purchase more food, cut back on the amount they provide or even trade local produce with other food banks. United Food Bank in Mesa, Ariz., recently got volunteers to pick oranges, grapefruits and lemons, some of which were swapped for potatoes from food banks in Idaho.”

And in recent news developments regarding GM crops and food price pressure, New York Times writer James Kanter reported today that, “Opponents of gene-altered crops won a victory in France on Wednesday when the top court upheld, at least for the time being, a ban on a corn variety produced by the American seed company Monsanto.

“Growers had argued that the economic harm they faced was serious enough for the month-old ban to be lifted immediately, before the start of the spring planting season.

“Proponents also said that allowing plantings of the gene-altered seed, called MON810, could benefit consumers at a time of rising food prices.

“But the Conseil d’État upheld the ban until it could rule on its scientific underpinning. Hearings are expected to be held in coming months.

“In his ruling, Judge Jean-Marie Delarue pointed out that a report issued in January by a committee of French specialists had called for more studies on the product’s safety.”

And not all food companies have completely negative financial news to report as a result of the current economic environment.

Reuters news reported today that, “General Mills posted a higher-than-expected quarterly profit on Wednesday as cost-cutting measures and higher sales helped offset soaring prices for wheat and other commodities.

“The company, the maker of Cheerios cereal, Progresso soup and Yoplait yogurt, stood by its forecast for the 2008 fiscal year, excluding special items. But it said it expected an acceleration in cost inflation in the fourth quarter.

“Like most food companies, General Mills has been hit by commodity costs that have risen well above expectations, and it has passed on some of those costs to the consumer. One way has been to reduce the size of cereal boxes, effectively raising the price per ounce.

“Net profit rose 61 percent, to $430.1 million, or $1.23 a share, in the fiscal third quarter that ended Feb. 24, compared with $267.5 million, or 74 cents a share, in the period a year earlier.”

EU- CAP Transparency

The Associated Press reported yesterday that, “The European Union will from next year publish the names and locations of all farmers who receive agricultural subsidies and the amounts they receive, officials said Wednesday.

“The details of this year’s payments will be revealed on national Web sites from April 30, 2009 and will stay online for two years, the European Commission said.

“Europe spends some €50 billion (US$78.86 billion) a year supporting farmers, roughly two fifths of the European Union budget.”

Dow Jones writer Matthew Dalton indicated yesterday that, “The policy, known as the CAP, lays out how European farmers get their subsidies. Farmers get paid for each hectare of land they farm, contingent on them following guidelines for environmental, food safety and animal welfare.

“The subsidies have been criticized because they frequently wind up in the hands of large companies or wealthy land owners…[T]he payments must be described by person and company and broken down into direct payments and other support measures received.”

Doha

The Associated Press reported yesterday that, “An agreement in the stalled Doha round of World Trade Organization talks may be nearer than people think, the presidents of Brazil and the European Commission said Wednesday.

“‘Don’t be surprised if very shortly we have an agreement on the Doha Round; that would be very good for the world economy,’ Brazilian President Luiz Inacio Lula da Silva said following a meeting with European Commission President Jose Manuel Durao Barroso.

“Silva said the current political climate was favorable to an agreement in the trade talks named after the Qatar capital where they were launched in 2001.”

The AP article noted that, “Durao Barroso did not say whether the European Union would be willing to reduce agricultural subsidies in order to overcome the impasse in the talks, which were scheduled to conclude in 2006.”

Keith Good

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