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Global food prices rise to highest level in a decade

Abdolreza Abbassian, Senior Economist for the UN Food and Agriculture Organization, joins Yahoo Finance Live to discuss the surge in global food prices.

Video Transcript

- Global food prices rose for the 12th month in a row in May, up nearly 40% year over year. That's according to the United Nations food price index. In fact, last month was the sharpest monthly rise in average food prices in over a decade spiking nearly 5% just from April to May. Here to talk about it is Abdolreza Abbassian, senior economist for the UN Food and Agriculture Organization. Abdolreza, thank you so much for joining us. We should mention that you are in Rome, Italy right now. Tell us why you are seeing this surge in food prices globally.

ABDOLREZA ABBASSIAN: Thank you for having me. Well, prices have been going up every month for the last 12 months. And as your audience knows better, like any commodity you are in the hands of supply and demand. So when there is an imbalance one way or another prices respond. We started off a year ago with, I would say, quite good supply. I'm talking very general because when we say food you know we have to give the specifics about which food we mean. But generally speaking, I think, food supplies are adequate, and in fact still are. But what happened here is that trade proved to be far stronger and far more robust than many people expected.

In fact, with COVID there was speculation that trade could come to a halt. Well none of that really happened. And in fact, the trade started to, trade flows, you know, sparing the first few months a little bit of anxiety over perhaps the logistical issues. Once those things passed, we saw trade expanding very fast and countries coming and buying. And this buy at the beginning was also a little bit, I would say, speculative. Some countries were worried what about if tomorrow I cannot get my food, so let me buy a bit more now. And that gave a bit of a, you know, market sentiment became a bit more bullish. So let's buy earlier, buy earlier.

So there was a bit of that. And then there were other issues. Some countries, some big ones, really came to the world market to buy a lot of raw material like soybeans, like corn, and that also affected the overall situation. But let me be very clear because the situation with food is very complex, and our index, the one that you've been quoting and in fact is sort of a good barometer, is really a barometer of international markets. What's happening in trade. But, you know, very little of what we consume actually get traded. Most of it, what is produced, is consumed locally. That part that gets traded, something like 10% of the total, of course you get one big buyer, one big seller, a bit of a disruption and you can see a spike in prices. This doesn't necessarily mean you see that spike all over the world. But is really very much trade related.

And that is really what our food price index captures. Still is a good indicator, it tells you about what's happening, what's a dynamic. And the dynamic today tells us that we are more or less at the same height as we were over a decade ago, which when prices were very high. Except that there are some other things different to a decade ago. Petroleum prices are not $150 as you would know, there is no real financial crisis as we had back in the previous episode of prices spike. So you know, there are major differences between this cycle and the previous one.

- You mentioned trade. I know that Brazil has cut back on its corn and sugar exports. They're experiencing a drought there. Corn goes into so much of what we eat. Products we don't even realize, things like soda and baked goods. You know, corn is in there too, it's not just in your breakfast cereal.

ABDOLREZA ABBASSIAN: Sure.

- Are we at the point where we would need to be concerned about supply shortages? And where some of that, you reference the panic buying, might that start to seep in and push prices even higher in the coming months?

ABDOLREZA ABBASSIAN: Well you're right about Brazil. I mean, the dry weather had affected a bit the prospects, but let us not forget it still is a very good crop in Brazil. Last year was a record, hard to beat a record, but still a very good crop. The problem today is that you're really producing sort of hand-to-mouth. So market expect much bigger crop from Brazil, why? Because there are a lot of big buyers on the other side, as we know. So this expectation, sort of disappoint what we hear today. Let's say that OK, Brazil could end up exporting a bit less than what it should. The next question comes, then who will fulfill Brazil's shoes? And that is, really for that kind of a size we're talking about, kind of can only be US.

Now you have to see, and we will all be waiting to see in a month's time, what the firm number is from USDA about the US corn production this year. Right now, we in AFO and G20 Agriculture Market Information System, we predict actually quite a bit higher production coming from US than USDA so far has projected. Which is a good thing. So it is true that we are sort of a tight situation with corn because there are big buyers, and on the supply side you have basically this issue with uncertainty with Brazil. And the US crop is still a couple of months down the line, in October you will going to set, to get this crop.

But let me also emphasize one thing in agriculture, which is a good thing. We have northern hemisphere, southern hemisphere. The prices go up, one side or the other, the farmers respond to that high price. So especially for something like corn. But you really have this split between north and southern hemisphere. High prices means farmers will go and plant more. The problem today is that the farmers, well it's a problem for consumers not for farmers. They don't know which one to choose.

Most crops are very good. If you were to choose corn you may want also to think about soybean, right? So it's a bit of a competition going on. I don't think we are dealing with scarcity here, which was one of your other questions. We are not really scarcity issue. What we are dealing with here is a bit of uncertainty, and this uncertainty, I think, in a way is working its way out very positively on prices. In other words, lifting prices. But this hopefully will be a temporary issue.

- Yeah. Real quick in the 15 seconds I have left, do you think that prices have peaked or how much further do you think we're going to see food prices go?

ABDOLREZA ABBASSIAN: If anybody could guess that, and I definitely cannot tell you just in 15 seconds. But I think prices will remain firm for at least another season.

- All right Abdolreza Abbassian, senior economist for the UN Food and Agriculture Organization. Thanks for being with us.

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