Page last updated at 15:47 GMT, Thursday, 29 May 2008 16:47 UK

UN warns about higher food costs

Man buying fruit from market trader
The high food prices are already hitting many people in their pockets

Higher food prices may be here to stay as demand from developing countries and production costs rise, says an influential report.

A report by the UN's Food & Agriculture Organisation (FAO) and the body for rich nations, the OECD, said prices will fall, but only gradually.

It said the current price spike was higher than previous records, partly due to bad weather ruining crops.

But factors, such as rising biofuel demand, will keep future costs high.

The FAO said speculators were also to blame for volatile commodity markets.

Soaring bills

In its annual Outlook report, the FAO predicted beef and pork prices might be 20% higher by 2017, wheat could be up to 60% more expensive and the cost of vegetable oils might rise by 80%.

Prices will level off at a far higher average level than seen before the crisis erupted. The long era of cheap food is over
David Loyn,
BBC international development correspondent

World prices for wheat, maize and oilseed crops doubled between 2005 and 2007, and while the FAO expects these prices to fall, the decline may be slower than after previous spikes.

As well as key factors such as weather, supply and demand and energy costs, speculators are also to blame for making commodity prices more volatile, the FAO says.

It is also concerned about the increasing use of crops for biofuels.

"Biofuels are the largest new source of demand for agriculture and are causing higher prices," said Merritt Cluff, one of the authors of the report.

"We are very worried particularly about biofuel policy. US government incentives for ethanol producers are distorting the market," he added.

Looking ahead, climate change may also affect crop harvests, pushing up prices further.

Wheat price graph

But the hardest-hit by rising food costs will be the poorest people on the planet, where a large share of income is spent on food, the FAO warned.

"We are hugely concerned about the poorest and we expect the number of undernourished people to rise," said Mr Cluff.

The FAO believes the commodity boom has forced some in the developing world to spend more than half their income on food, particularly those countries that have to import much of their food.

But even then, its outlook may be too conservative, says BBC international development correspondent David Loyn, since predicting future oil prices is a near-impossible task.

One key assumption made is that crude oil prices will peak at $104 a barrel by 2017 says our correspondent. But as he points out, the price is already well above that, and some reputable analysts are now predicting oil will go to $200 a barrel.

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And he added that while there may be a drop in food prices in coming years, "there is a sting in the tail.

"Prices will level off at a far higher average level than seen before the crisis erupted," he said. "The long era of cheap food is over."

Rising food bills have triggered protests, riots and panic buying in some developing countries.

Earlier this month, the FAO calculated the amount of money being spent globally on importing food was set to top $1 trillion (528bn) in 2008, a 26% rise on the previous year.

However, the food crisis could also shift the epicentre of global agriculture from developed to developing countries and the FAO predicts that emerging economies will dominate in the production and consumption of most basic foods in 10 years.

Global food export chart




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