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Higher Wheat Prices Do Not Signal Another Food Price Crisis

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Joe DeCapua

Despite a recent rise in the cost of wheat, food policy analysts are warning not to compare it to the food price crisis of 2007/2008.  The International Food Policy Research Institute (IFPRI) says “panic” over higher wheat prices is “baseless and could only hurt the poor.”

Concern has risen in some quarters because drought and wildfires have affected Russia’s wheat harvest.  The government has banned wheat exports into next year.

Maximo Torero, director of IFPRI’s Markets, Trade and Institutions Division, says, “It’s not an advocacy message.  It’s basically the reality.  The problem is there have been a lot of linkages between the 2007/2008 [crisis] with the current crisis.  And the situations are pretty different.”

How different?

“In this case, despite the problems of Russia and the reduction of supply in Russia and the closing of their borders in terms of exports of wheat, there are still sufficient grains available.  And there are also sufficient stocks, around 50 million metric tons more than 2007/2008,” he says.

What’s more, he says, “The prices of the other commodities, which in 2007/2008 were increasing substantially, have not increased at those levels, which mean corn and soybeans.  And also the price of oil is US$ 75 per barrel, which before was one hundred and thirty something.”

Make matters worse for the poor

An IFPRI statement says suggestions that the situation today and that of a few years ago are the same “serve to drive up food prices and hurt poor people, who spend much or most of their incomes on food.  They need neither jittery markets nor ad hoc protectionism, which has exacerbated past food crises.”

Torero says, “Calm down.  Because the problem is, if there is a lot of pressure through media or through news telling that we are in the same crisis as before, what could happen is that some countries could get into a nervous situation.  Internal politics could affect the situation.”

That could result in those countries following Russia’s example and imposing an export ban on wheat.  “And then, of course, that could create a problem,” he says.

IFPRI also points out that bad weather, which it calls a perennial wildcard in agriculture and commodity markets, has not affected all producers.

“In some countries, like in Russia, we had a problem.  But in others, we’re having a bumper harvest, like in the case of the U.S.,” he says.  Australia and Canada are also having good wheat harvests.

“So, we don’t see weather affecting all at the same time,” Torero says.  And while Pakistan has been hit by floods, the harvest had already been collected and stored.  “What has been lost on one side can be compensated (for) on the other side.”

Mozambique

Mozambique recently experienced riots following a sharp rise in food prices.  But Torero says it’s “another example of how things get distorted.”

He adds, “What happened in Mozambique basically was a response of the government increasing control prices – prices that were fixed by the government, not fixed by the market – in a significant amount.”

The government action affected the price of such things as electricity, water and bread.

“It had nothing to do with what happened… at the global level.  The reasoning behind [the price hikes] is there was a significant devaluation with respect to the currency in South Africa, from the metical [Mozambican currency] to the rand, which was huge,” he says.

The devaluation of the metical hit the country hard because Mozambique imports much of its goods from South Africa.  Nevertheless, many assumed the situation stemmed from higher wheat prices.

“It was completely linked to the food crisis and those kinds of things don’t make, honestly, too much sense,” he says.

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