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Long era of cheap food is over
http://news.bbc.co.uk/2/hi/business/7425078.stm
By David Loyn
International development correspondent, BBC News

Peering just a few months ahead to estimate food prices has been a tough game 
recently.

Biofuel protesters in Parliament Square in London
As food costs rise, there is debate over whether biofuels should be encouraged

Peering 10 years ahead might seem impossible, especially when some of the 
assumptions made for the new UN Food and Agriculture Organisation report 
already look questionable.

For example, one key assumption made is that crude oil prices will peak at 
$104 a barrel by 2017, within variations along the way.

The price is already well above that, and some reputable analysts are now 
predicting oil will go to $200 a barrel.

High oil prices push up costs for farmers in the developed world.

Fertiliser needs oil for its manufacture, while shipping costs have risen 
substantially.

But it is the poorest in the world who face the bleakest future - 800 million 
people who did not have enough to eat on a daily basis even before the recent 
huge rise in prices.

The report emphasises the need for humanitarian aid to fill the gap in the 
short term, and the World Bank has now announced major support to help 
developing countries.

Farewell, cheap food

Poor people in cities, who can spend half of their income on food, are the 
most vulnerable.

Governments across the world - particularly in a belt of countries across 
North Africa, from Mauritania to Egypt - are looking nervously at rising food 
prices and wondering about the political impact if things do not ease soon.

The main conclusion of the report, that prices will fall from the high spike 
seen at the end of 2007, will console them.


Oilseed rape field

UN warns about rising food costs

But there is a sting in the tail: prices will level off at a far higher 
average level than seen before the crisis erupted. The long era of cheap food 
is over.

There is an opportunity here, too. The higher prices mean that investment in 
agriculture will become more attractive, although the report emphasises the 
need for spending in training, education and infrastructure to exploit the 
available talent.

But the increased interest in agriculture also has a downside, as 
"non-commercial traders" - speculators in normal language - have come into 
the agricultural commodity market.

Apart from drought, speculation was the other factor named in the report as 
being responsible for the record highs and the recent volatility in markets.

>From 17% in 2005, their share of the futures market rose to 43%. And the FAO 
>report says they could leave as fast as they came.

Biofuel battles

The report is a glimpse into a new world of trading relationships. There has 
been a lot of notice taken of China's new involvement in Africa, but less 
attention paid to its equally intense interest in Latin America.

By 2017, China will have become the world's second-largest oilseed and 
vegetable oil importer, and Brazil will be easily the largest exporter, 
outstripping the US.

Biodiesel production (mostly from soybeans) is entirely dependent on 
government subsidy, since the report emphasises that its production cost will 
remain higher than the cost of conventional diesel production.

So the political battles will increase over whether biofuels should be 
encouraged.

Biofuels are here to stay, with or without state support. Again, Brazil is 
the main engine of growth here, both in terms of production and consumption 
of biofuels.

But the US is catching up, with as astonishing 40% of US maize production 
predicted to go on biofuels by 2017.