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31.01.2012 Commodity News

Quarterly Food Prices Decline, but Remain Volatile

Price Index 24 percent higher on average than 2010
31.01.2012 LISTEN
By World Bank Ghana

WASHINGTON, January 31, 2012Global food prices declined 8 percent between September and December of 2011 due to increasing supplies and uncertainty about the global economy, but still remain volatile and high with the 2011 annual index 24 percent higher than its average in 2010, according to the World Bank Groups latest Food Price Watch.

While the first quarter of 2011 witnessed sharp increases, five consecutive months of decreases at the end of the year drove the World Bank Food Price Index 7 percent below the December 2010 levels, and 14 percent lower than its February peak. Nevertheless, global prices remain high with the 2011 annual index averaging at 210 points against 169 points average in 2010.

According to the quarterly Food Price Watch report, despite the downward trend over the last few months, global prices of key staples continued experiencing volatility, and the average annual prices of wheat, maize and rice well exceeded averages for 2010.

Domestic food prices also experienced sharp increases in many countries from December 2010 to December 2011. Wheat prices were up 88 percent in Belarus and 23 percent in Ethiopia; rice prices increased 81 percent in Uganda and 56 percent in Malawi; maize was up 117 percent in Kenya and 106 percent in Mexico; and sorghum increased 57 percent in Burkina Faso and 28 percent in Ethiopia.

The worst food price increases may be over but we must remain vigilant,said Otaviano Canuto, the World Bank Groups Vice President for Poverty Reduction and Economic Management (PREM). Prices of certain foods remain dangerously high in many countries, leaving millions of people at risk of malnutrition and hunger. Governments must step up to the plate and implement policies to help people cope.

Unseasonal increases in cereal prices threaten to deteriorate food insecurity conditions, especially in conflict-affected areas in Africa and across southern Somalia. In addition, the adoption of some coping mechanisms in poor homesfrom eating cheaper meals to taking children out of schoolcould have negative, long-lasting effects on the health and well-being of millions of families in already difficult situations. Therefore, more and well-targeted support to help people cope is needed, such as school food programs, conditional cash transfers, and food-for-work programs.

Looking ahead
Prospects for decline in 2012 food prices remain favorable, due to weaker consumer demand as a result of a sluggish global economy, expected declines in the price of energy and crude oil, and strong forecasts for 2012 food supplies.

Nevertheless some upward price pressures still remain. These include a possible increase in demand for biofuels if oil prices pick up again, very low stock-to-use levels for maize, volatility in oil prices as a result of unrest in producer countries, and weather changes. La Niña, for instance, has already made its presence felt in the Pacific Ocean and is expected to affect the growing season of maize and soybeans in Argentina and Brazil.

How the World Bank Group (WBG) is helping to put food first

In response to drought in the Horn of Africa, the WBG is providing $1.88 billion to save lives, improve social protection, and foster economic recovery and drought resilience.

A first-of-its-kind risk management product, provided by the International Finance Corporation (IFC), will enable up to $4 billion in protection from volatile food prices for farmers, food producers, and consumers in developing countries.

The Global Food Crisis Response Program is helping 40 million people in 44 countries through $1.5 billion in support.

The WBG is boosting spending on agriculture to some $6 to $8 billion a year from $4.1 billion in 2008.

Supporting the Global Agriculture and Food Security Program (GAFSP), set up by the WBG in April 2010 at G20s request. Seven countries and the Gates Foundation have pledged about $1.1 billion over 3 years, with $612 million received.

The WBG is coordinating with UN agencies through the High-Level Task Force on the Global Food Security Crisis and with NGOs.

The WBG is supporting the Consultative Group on International Agriculture Research (CGIAR), which in 2008  with the support of the World Bank and other donors  launched a reform process that culminated in the adoption of a strategic framework that sets out common goals, objectives, and results for the CGIARs new research programs, and the establishment of a multi-donor trust fund, which is administered by the World Bank. The new funding model enables the CGIAR to absorb and attract vastly more program funding, with a target annual budget of $1 billion by 2013, to which the World Bank contributes some $50 million per year. With agriculture production needing to rise by at least 70 percent to meet global food demand by 2050, and with significant time lags between the development of new agricultural technologies and their adoption by farmers, increased funding from the international community for global research is critically and urgently needed.

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