Governments stockpile food staples

By Javier Blas in London and Chris Giles in Davos

Published: January 27 2011 18:58 | Last updated: January 27 2011 18:58

Governments across the developing world are stockpiling food staples in an attempt to contain panic buying, inflation and social unrest.

But the hoarding is driving agricultural commodity prices even higher. The cost of wheat, the world’s most important staple, reached a fresh two-and-a-half-year high on Thursday, after countries from Algeria to Saudi Arabia announced extraordinary purchases.

High food prices have been a contributing factor to the recent wave of social unrest across North Africa and the Middle East. In Algeria earlier this month, young rioters chanted “Bring us sugar!” The cost of the sweetener in the wholesale market is at its highest in 30 years.

Earlier this week, Algeria bought 800,000 tonnes of wheat – much more than usual – and Saudi Arabia announced plans to double the size of its wheat stockpile.

Bangladesh and Indonesia joined the rush on Thursday, placing extraordinary on rice orders. Traders said that Jakarta, which usually buys rice in 200,000-tonne allotments, tendered for more than 800,000 tonnes. Bangladesh said it would double rice purchases this year.

“If you look to the average prices from 2000 to 2006 I think we would stay above the levels we observed then,” Gregory Page, chief executive of Cargill, the world’s largest trader of agricultural commodities, told the Financial Times in a video interview at the World Economic Forum in Davos.

Mr Page, who said weather patterns would determine when prices peak, hopes they will not exceed 2007-08 levels if good weather prevails.

“Clearly at these prices, the farmers of the world are receiving a price signal to go out and intensify their agriculture,” he said.

In the short term that was likely to mean an increase in the land on which two crops a year are planted – and in the longer term increasing the productivity of farming in developing countries.

But Cargill believes agricultural prices are likely to remain very volatile because the prospect of higher prices encourages short-term additional demand and stock building, amplifying any price moves. And further supply disruption either from poor weather or from countries extending export bans could lead to temporarily extreme high prices.

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