Money Matters - Simplified

Rising wheat prices cause of concern for UN

The sharp increase in prices due to the uncertainty about future supplies can mean that the poor in some areas of the world might have to face higher prices in the coming months.

The Food and Agricultural Organization of the UN convened an emergency meeting to discuss the rising wheat prices.

With the memories of steep increase in the prices of food grain in 2008 still afresh, the UN expressed concerns over the ban imposed on food grain export by Russia and the poor harvest predicted in other parts of the world due to floods and droughts.

Rise in wheat prices
Till now food prices have risen by five percent, fueled mostly by high cost of Wheat.

Abdolreza Abbassian, an economist with the United Nation's Food and Agriculture Organization said at Rome, "We are faced with an unstable situation. The memories of what happened a couple of years ago are still afresh and the people remember what happened a few years ago, so it is a combination of psychology and the expectation that worse may come," he added. "There may be critical months ahead."

A global phenomenon
The issue has worldwide ramifications. Harvest in Germany and Canada may be affected by wet weather and flooding, while crops in Argentina might suffer from drought, same as that of Australia's, predict agricultural experts.

The sharp increase in prices due to the uncertainty about future supplies can mean that the poor in some areas of the world might have to face higher prices in the coming months.

Volatile market
Food prices are still some 30 percent below the 2008 levels. The wheat crop this year is also the third highest, according to the FAO, but the sudden supply interruptions can make the markets jittery.

Earlier, Russia was predicting a loss of just a few million metric tons because of hot weather, but now they have announced it would lose about one-fifth of its crop. Wheat prices increased more than double in that period.

Ramifications of drought in Russia
A decade ago, Russia, Ukraine and Kazakhstan, used to supply only 4 percent of the wheat supplied in the international market.

Now majority of the global demand is being supplied from that region, but the area now produces about 30 percent of the wheat traded in international markets, said Abbassian.

This is the first time that we are witnessing a supply crisis has in that area.

An export ban announced by Russia in early August, which is not expected to be reviewed till next year.

Floods in other parts of the globe
Whereas drought is wreaking havoc in Russia and other countries round the Black Sea, floods have wiped out millions of tons of crop in countries like Pakistan and Canada.

Canada, one of the top four exporters of grains in the World also anticipates a decline of 35 percent in the wheat harvest due to heavy rains earlier during the sowing season.

Viterra, Canada’s largest grain handling company has witnessed a dip in its share prices over the past few months, prompted by the problems originating from the heavy rains.

Pakistan’s flood have finished off more than half a million tonnes of wheat seed stocks, while drought and flooding in Niger have triggered a steep rise in prices, pushing almost half of the country’s 15 million people towards hunger.

Aid in the form of food may not be enough. The next wheat crop also has to be salvaged; otherwise the food security of millions will be at stake.

Corrective measures may include building large reserves of grains with countries like Russia, to use in time of crop shortage.