Astana, 4 May 2011: Reuters

World food prices are set to rise again as concerns persist over Chinese and U.S. winter crops and global production lags increasing demand, according to the head of the United Nations' Food and Agriculture Organisation.

FAO Director General Jacques Diouf told Reuters Insider that rising output of biofuels was also contributing to food shortages, consuming more than 100 million tonnes a year of cereals that would otherwise be used in food production.

The FAO's global food index fell in March after eight months of consecutive gains, driven by political unrest across parts of North Africa and the Middle East and the earthquake and tsunami in Japan. The affected regions are major importers of grain.

But Diouf said this trend had already begun to reverse. "The fundamentals of supply and demand are still there," he said in an interview. "There are concerns about the winter crops in China and in the U.S. In addition, demand has started increasing in Japan and in the Arab world."

Diouf said the extent to which food prices will rise would depend on the dollar's value on world oil prices. "All of this is being exacerbated by climate change and droughts and floods," he said.

"The fundamentals are that we are going toward high prices. Due to a lack of investment in agriculture over the past decade, production is not enough."

ETHANOL PRODUCTION

Corn prices on the Chicago Board of Trade last month pushed above wheat prices for the first time in 15 years as U.S. stocks dwindled to their tightest since the 1930s. Demand from ethanol producers is among the factors driving corn prices higher.

Diouf said the growth of the ethanol business had exerted a "huge impact" on global food prices. He said developed countries had given around $13 billion in annual subsidies and protection to encourage production of biofuels. "Ethanol development overall in Europe and in the U.S. has displaced between 100 (million) and 120 million tonnes of cereals from the food market into consumption for transport," he said.

Diouf also reiterated the FAO's call to re-introduce market regulation to curb speculation that he said had led to increased food price volatility.

He said "concrete proposals" were being prepared ahead of a June meeting of agriculture ministers from the G20 group of countries, which is currently chaired by France and includes rich and developing nations such as China, India and Brazil.

French President Nicolas Sarkozy has called for tough measures to limit speculation in commodities markets, which he blames for driving up global prices of oil and food.

German Agriculture and Consumer Protection Minister Ilser Aigner said last month his country supported the proposals.

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