The rise in commodities and food prices spark UN meeting

The recent rise of wheat and barley on the futures markets have caused sufficient concern for the UN to call a special meeting to be held on September 24 in Rome.

The United Nations Food and Agriculture Organization (FAO) will discuss the sharp rise in commodities prices during the month of August and to find ways to prevent a repeat of the 2008 food crisis that resulted in riots in Haiti and Mozambique.

The combination of severe droughts across multiple grain producing countries and the announcement that Russia will extend its exporting ban on grain for another six months, was sufficient fuel for the futures markets to rise.

The only country to formally impose an embargo on grain exports has been Russia while other countries such as Ukraine and Kazakhstan have implemented less formal restrictions.

A recent 30% price increase for bread led to riots and several deaths in Mozambique and the uncertainty is sufficient for the FAO to open international talks about the import and export of natural commodities to calm down the markets.

The inclement weather conditions and a single grain embargo alone do not justify the current rise in wheat, sugar and corn or pork bellies prices and one should also take into consideration the effect of speculators.

Nevertheless, a disruption of food supply and demand across the globe as well as a rapid rise in food prices in neighborhood stores has people worried about the future.

According to the FAO, the worldwide grain reserves remain above the 2008 level and should not be reason for concern. In an interview with the UN News Centre, officials stated that the recent spike in the wheat market is overdone.

The fact remains that if one nation enforces a grain embargo that the bilateral trade agreements come under pressure and disrupt the supply chain. The world’s poorest countries are primarily turning to the US to import their much needed grains now that Russia has closed its doors.

The question for the future is how to rebalance this short term price and export disruption and how to stabilize our commodities markets to ensure that food prices rise at a natural pace rather than sharp spikes that hurt the consumers locally and abroad.

Written by Nick Doms © 2010, all rights reserved.