Sugar Causes Increase in World Food Prices

Rising sugar prices that outweigh a sluggish grains complex are to blame for world food prices reaching a near record high in June, the United Nations food body reported Thursday. If it wasn’t for sugar, the world would have seen a decrease in food prices.

The sugar price increased by 14 percent last month due to a high demand and low production output in Brazil.

The Food and Agriculture Organization’s food price index, which covers the prices of commodities, increased by one percent to reach 234 points this past June. This was up 39 percent from June 2010’s score and slightly below the record high of 238 points reached in February.

The FAO's measure observes a range of essential foods, including cereals, oilseeds, dairy, meat and sugar. The sugar price rise brought about most of the increase, despite falls in prices of wheat, corn and soya.

With prices being 30 percent higher than one year ago, the FAO is predicting that one billion people will be malnourished this year.

The rise of food prices hits poorer countries particularly hard. High food prices have been known to spark civil unrest in some developing countries, particularly in those countries where citizens rely heavily on corn, wheat, and rice for their nutrition intake. In 2008, a global food crisis ignited mass riots and unrest in the developing world. It was also one of the many factors that brought Arab citizens to the streets in protest this past January.

Countries are trying different techniques to reduce the increasing prices and the possible inflation that it brings. China has introduced price controls, and has promised to curtail hoarding as well. The European Central Bank also raised rates for the second time this year and India has put up interest rates.

“We’re not yet seeing any break,” said Abdolreza Abbassian, secretary of the FAO's Intergovernmental Group on Grains, as quoted by The Washington Post. “Almost in every country, including in Europe, the issue of higher food prices has already become tangible.”

“The question of how to satisfy the food needs of an expanding population with ever more sophisticated tastes and an increasingly unified mode of consumption is getting even more pressing,” analysts Veronique Riches-Flores and Loic de Galzain at Societe Generale SA wrote in a report yesterday, according to Bloomberg News.

Abbassian, told The Wall Street Journal that despite the expected fall of sugar prices in the coming months, any pullback in world food prices is likely to be minimal. FAO’s most recent Food Outlook report said that despite record food production, global food prices are expected to remain high and mercurial throughout the rest of this year and into the next due to a rise in demand.

"For the foreseeable future we will be still vulnerable to weather shocks affecting prices more than we're used to because we've got no buffer," Abbassian said, according to the WSJ.

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