Food costs rising on demand not ferts prices - FAO

15 April 2008 13:19  [Source: ICIS news]

By Mike Nash

LONDON (ICIS news)--Increased demand as a result of recent rapid industrialisation, not record fertilizer prices, is the main cause of higher food prices worldwide, a senior fertilizer expert at the UN's Food & Agriculture Organisation (FAO) said late on Monday.

“It is safe to assume that the food riots have nothing to do with fertilizers,” said FAO fertilizer expert Jan Poullise.

Riots over the high prices of basic food staples, most recently reported in Haiti where five people died as a result, prompted FAO director-general Jacques Diouf to call for urgent measures to be implemented to alleviate the short-term adverse effects on the world’s poor.

Countries such as Haiti are dependent on imports of rice and beans, prices of which have skyrocketed in recent months.

“World food prices have risen 45% in the last nine months and there are serious shortages of rice, wheat and maize,” Diouf said at the First Global Agro-Industries Forum in New Delhi on 9 April.

On the issue of food security, Poullise said that Diouf was “correct in saying that an irrigation scheme may take five years to implement, whereas the benefits of fertilizers can be seen much quicker.

“So the high price of fertilizers certainly does not help. If the supply of fertilizers was more flexible, then prices would come down.”

“High fertilizer prices meant hitherto non-fertilizer users will defer consumption while existing users will just use less,” Poullise added.

However, Poullise said that the fundamental reason for the problem was food demand as a result of economic growth and an increasing world population.

“Increasing affluence in China means a family eats pork once a week, not once a month,” Poullise said.

“Rapid industrialisation has always been associated with food deficit. And it is the inability to rapidly respond to food demand that has caused the problem.”

Poullise also pointed to the large-scale drawing down of grain reserves globally.

Neither did “food riots mean that food production is lagging behind demand,” added Poullise.

In a FAO report released in February on global fertilizer supply and demand, Poullise said that “record [food] prices are being achieved at a time not of scarcity but of abundance”.

More fundamental reasons were also cited for the global high prices of rice and other staple foodstuffs.

“Inadequate investment in the agricultural sector [of developing countries] is a major factor,” said Poullise. “Something simple like an all-weather road is very important, as it enables farmers to get finished crops out to market.”

He echoed Diouf’s statement that it was essential “to increase agricultural investment in water control and infrastructure and to facilitate small farmer access to inputs, so they can raise their productivity.”

India provided a timely reminder of the perils of government intervention in the agro-industry.

“I would have argued against the rice export ban in India,” said Poullise. “Farmers now cannot enjoy the true international price of rice in the global market. If they had invested in a little more water control in the state of Orissa this would have compensated.”

In terms of fertilizers, Poullise said that world production was expected to outstrip demand over the next five years, supporting higher levels of food and biofuel production.

In an earlier FAO statement, Poullise said that “high commodity prices experienced over recent years led to increased production and correspondingly to greater fertilizer use.

“This has led to tight markets and higher fertilizer prices. While it is expected that the demand for basic food crops, fruits and vegetables, for animal products and for biofuel crops is likely to remain strong, we expect fertilizer supply to grow sufficiently to meet higher consumption,” he said.

Poullise acknowledged that in the short term there was a lack of fertilizers globally.

“The stuff is just not around,” he said. “We even have difficulty to find fertilizer as part of our development projects. But there will be a supplier response longer term.”

The FAO estimated that world fertilizer supply will increase by 34m tonnes between 2008 and 2012, representing an annual growth rate of 3%.

Poullise did not believe that biofuels were diverting fertilizer usage away from food production and said that use of fertilizer for biofuel crops would only amount to around 3% of total fertilizer demand in 2012.

“While the need for large amounts of feedstock is likely to fuel demand [of fertilizers for biofuel production] in the short term, no dramatic increased in fertilizer demand is expected [to 2012].”

Poullise expected further unrest as a result of the higher food prices. “Yes we will see more unrest; you only need to look at large metropolitan areas in the third world that rely on imported materials.”

But Poullise added that “fertilizers can be supplied with adequate credit lines – the financial sector has got to help the fertilizer trader and the farmer.

“This is a golden opportunity for the commercialisation and intensification of the third-world agricultural sector. Farmers are better off as commodity prices rise. Higher prices are the best thing that could have happened to farmers.”

Please visit the full fertilizers portfolio at ICIS pricing

By: Mike Nash
+44 20 8652 3214

AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly

Get access to breaking chemical news as it happens.
ICIS Global Petrochemical Index (IPEX)
ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index