Economists fear 2008 repeat as corn, soya bean prices rise

SINGAPORE -- Global economists are warning that the world might see a repeat of the 2008 food crisis after corn and soya bean prices hit 21/2-year highs this week.

On Wednesday, corn and soya bean jumped 4 percent to US$5.93 and US$13.86 a bushel respectively following a United States Agriculture Department announcement that corn production was on course to drop 5 percent this year and soya bean output was likely to fall 1 percent.

And late Thursday, the price of both crops hiked again, with corn trading at US$6.38 and soya at US$14.18 a bushel.

Supplies of the two commodities have been depleted by demand for corn-based ethanol and a sharp fall in 2010 production of both corn and soya bean.

Corn and soya are used extensively as feed for livestock and experts predict the tightening supply and rising cost of the crops will force up meat and dairy prices.

Livestock prices have already begun climbing, with cattle futures setting a record on Wednesday night and hogs reaching an eight-month high.

Economists from the World Bank are alarmed about the rapid rises and fear the impact of escalating food inflation on the developing world.

“Although real food prices in most developing countries have not increased as much as those measured in U.S. dollars, they have risen sharply in some poor countries,” the World Bank noted in its latest Global Economic Prospects report.

Economist Chua Hak Bin from Bank of America Merrill Lynch expects many South-east Asian countries to be hard-hit by the rocketing prices, as a disproportionately large amount of consumer spending in the region goes on food.

“In the Philippines, it's 49 percent of their consumer price index basket, in Indonesia it is 38 percent, Thailand 35 percent, Malaysia 34 percent,” he said at a media briefing.

Dr Chua pointed out that the situation was not currently as serious as the 2008 food crisis.

The prices of major staples, such as rice and oil, had not increased as much as other commodities. Over the past six months, rice has risen 30 percent and crude oil 19 percent. In contrast, corn has surged 84 percent and soya bean is now 39 percent higher.

Citigroup economist Kit Wei Zheng added that Singapore was not likely to be significantly affected by the runaway food prices. He noted that during the 2008 food crisis, food prices in Singapore increased at a much slower rate than the United Nations' Food Price Index.

For 2012, growth in the global economy is estimated at 3.6 percent.

Threats that could derail the recovery include the euro zone debt crisis and volatile capital flows as well as commodity prices, the World Bank added.

(Source: http://www.chinapost.com.tw/business/global-markets/2011/01/15/287668/Economists-fear.htm)