Food Prices Will Grow With No Prospected Crisis
13 September, 2012
Food Prices Will Grow With No Prospected Crisis

Good prices will rise in the import-dependent Georgia but no apocalyptic picture looms in prospect unless the military instability in the Middle East aggravates. Three arm-groups of the United Nation of  Food and Agriculture Organization (FAO), the World Food Programme (WFP), and the International   Fund for Agriculture Development (IFAD) warned on September 4, 2012 that another bout of food crisis similar to 2007-2008 may rebound.

The sharp increase of prices in maize, wheat and soybean makes the UN experts to issue

pessimistic forecast and call for swift, coordinated action to discharge the situation so as “to make sure that these price shocks do not turn into a catastrophe hurting tens of millions over the coming months.”

According to agriculture experts, inclement weather conditions [frosts, droughts, and heavy rains] in key crop producing countries including America, Russia, and Europe affected harvest and caused the price hike. Prices started rising from June and increased particularly in this past July when prices on wheat, sugar and maize increased by 17%, 12% and 33% respectively.

One need not be too be an agriculture expert to guess that the export-dependent countries like Georgia are more vulnerable to price spikes. However, Georgian experts expect no apocalyptic picture unless instability in Middles East like Egypt, and Syria does not grow into warfare and does not infect Iran on its way.

“No serious food crisis and food shortage looms in prospect due to inclement climate conditions alone affecting harvest potential. The situation will be more sensitive in countries like Georgia due to its social vulnerability and dependence on the import [by approximately 90%], price will go high for sure. But if military situation aggravates in Arabian countries and force majore comes in I do not rule out much more lamentable outcome like cutting supply for logistics problems when food cannot be physically available,” Badri Ramishvili, an agriculture marketing expert, said in the interview to Georgian Journal.

Ramishvili fears that the military tension will not cause oil price spikes that in chain reaction will jack price up on food and countries like Georgia that have neither self-insurance-source nor strategic reserves of wheat and meat may face serious problems. The point is that under force majore situation the EU may close its borders and take care only after its members-states and partner countries.

Georgia depends only on commercial reserves of wheat made mainly by wheat importers that makes reserves of 1.5-2 months, Levan Silagava, Head of Association of Wheat Importers, said to GJ. Georgian state makes no reserves other than that. Georgia consumes about 600 thousand tons of wheat and Georgian local production makes about 13-15% of it translating into tentatively 100 thousand tons of what this year. The exact statistic is not available as far as not all farmers report their harvest figures at official statistics body.

Both Silagava and Ramishvili recommend the state to take care for strategic reserves.

“If we could be some kind of a part to the EU community, even from the economic point of view, like having free trade with the EU, we might feel much safer and need no state reserves of food for the EU would take care for its member states and partners in case of force majore. But until we are a sort of isolated country we should think of a longer-term food reserves from at least 6 to 12 months,” Ramishvili said.

Silagava thinks there is no ground to fear for the food shortage and price hike on bread. Prices on flour have already increased by approximately 31% from GEL 29 per 50 kilo sack fixed in January of this year to approximately GEL 37-38. But Silagava presumes that it should not jack bread prices up since flour makes just about 50-60% of the bread self-price. The remainder 50-40% of price-making factors may offset the flour cost.

The current price difference between GEL 29 and GEL37-38 per sack is still far from GEL 60 fixed in 2010, Silagava believes. Actually a sack of flour costs GEL 41-42 at retail market but that cannot affect the general bread price for only petty bakeries buy flour at retail market, all big fishes  that can have influence on the market make procurements at big mills charging a sack by GEL 37-38, Silagava assures.

“Now the crucial thing is the price, not the deficit of wheat. The international markets expect now whether or not Russia will curb export. The reason is wheat harvest forecast reduced in Russia alone from 90 million tons predicted in June to 75-70 at the moment; and 12 million tons out of the figure is supposed to be exported instead the expected 18 million tons.   If Russian harvest will really stand at 70 million, Russia that can no longer enjoy quotas on export [since it is the World Trade Organization (WTO) member], plans to charge exported wheat by tentatively EUR 20 per ton that will fuel prices up at the international markets,” Silagava elaborated.

Prices on wheat were kept lower in June thanks to Kazakh export. Kazakhstan had the past year reserves of unsold wheat for the year of 2011 was rich and to sell the old harvest Kazakh government entered the market by damping prices. To boost Kazakh traders to export the product completely the state introduced USD 40 as bonus per ton of exported wheat that enabled Kazakh exporters to sell wheat for USD 230 per ton and even USD 210 early  in June. But the old Kazakh export reserves expired by August 1st, the damping prices were removed and the market prices flattened for all wheat exporters fixing USD 330 at the moment.

Now prices are supposed to go only up but how much higher,  depends on the market trends.

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