Rising Food Prices are Causing Economic Dangers

In June, the rising cost of food staples (NYSE:RJA) like sugar, meat, and dairy led the world’s central banks to increase interest rates in order to combat inflation. European Central Bank council members meet in Frankfurt today, and will likely raise the benchmark 25 basis points to 1.5% in order to combat inflation.

Today the United Nations’ Food and Agriculture Organization released a report showing that an index of 55 food commodities (NYSE:RJA) had risen 2.4 points in May to 233.8. The gauge reached an all-time high in February of 237.7. According to the FAO’s director-general, food prices are going to remain high for a “long time”, with Oxfam International confirming that the price of food staples will continue to rise if left unchecked, doubling in the next twenty years.

World food output would have to increase 70% by 2050 as the world population rises from 6.9 billion to 9.2 billion. But agricultural output is expected to slow to 1.7% a year through 2020, compared to the last decade’s 2.6% yearly growth.

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Just the recent jump on the FAO’s sugar index after the world’s largest producer, Brazil, forecast a smaller yield this year has lifted the entire food index. Also up was the FAO’s dairy and meat indices. The U.S. Department of Agriculture reported milk prices rose 16% in June. And while the FAO cereals index fell for the second month in a row, it’s still up 71% year-over-year, and this during the commodity’s seasonal low. Also declining were the prices of corn, wheat, and soybean futures, but global food prices remain up overall.

According to World Bank President Robert Zoellick, as of February 2011, high food prices had already pushed roughly 44 million people into poverty since June 2010. And if the UN food index should rise another 10%, it is expected that another 10 million people will find themselves falling below the poverty line.

In 2011, the world’s countries will spend a record $1.29 trillion on imported food, up 21% over last year, according to FAO estimates.