London, 18 August 2010

There is much concern and media speculation about whether the recent events in Russia might lead to a sustained rise in agricultural and food prices. The last time that the world suffered “agflation” was as recently as 2007/08, when, similar to now, droughts in key wheat exporting areas led to a serious crop shortfall.

But the similarities end there, because what we are seeing currently is a world market that is much better buffered in terms of coping with regional deficits. Due to higher inventories and various other factors that we discuss in this report, we think prices are unlikely to spiral up to the same extent as three years ago. That is, provided there are no additional crop downgrades in other crucial producing regions – a risk that we need to monitor.

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