World risks third food-price surge in a decade

[LONDON] The El Nino weather pattern sweeping the globe for the first time in five years risks setting off the next great surge in world food prices after they rose to records in 2008 and 2011, according to Nomura International Ltd.

Forecasters are predicting that El Nino, characterized by ocean warming in the equatorial Pacific, may be the strongest since records began in 1950. It has already brought torrential rains to parts of South America and dryness to Southeast Asia. The Philippines said on Thursday it plans to boost rice imports to prepare for potential shortages, while Rabobank International warned that wheat crops in Australia may be under threat.

Demand for food may also be larger than some analysts anticipate, leaving consumers vulnerable to shortfalls in production, Nomura analysts said in an e-mailed report Thursday. Crop shortfalls and surging prices contributed to sparking riots and civil unrest in some countries over the past decade.

"It may not take much disruption in global food supply to trigger another price surge," analysts including Rob Subbaraman and Michael Kurtz said in the report. Shortages "could be compounded by feedback loops such as increased hoarding, financial speculation and trade protectionism," they said.

World food prices tracked by the United Nations have tumbled to the lowest levels since 2009 after bumper global harvests of everything from corn to soybeans to wheat. The gauge, which tracks prices for 73 food products, surged to records in 2008 and in 2011 after crop shortfalls.

Countries where people spend higher proportions of their income on food would be most affected, with economic growth shrinking and inflation potentially jumping in some nations, Nomura said. Bangladesh, Algeria, Egypt, Nigeria and Pakistan are among those most at risk, while large net-exporters including New Zealand, Uruguay, the Netherlands and Argentina would benefit, it said.

Food prices probably will rise during the next decade as demand increases, especially in developing countries, and developments in agricultural productivity and arable land supplies lag behind, Nomura said.

BLOOMBERG