Wednesday, January 19, 2011

INTERVIEW - Rising food prices may hit WFP budget


Wednesday, January 19, 2011
LONDON (Reuters) - The World Food Programme's budget could come under pressure this year if food prices continue to rise, a senior official with the U.N. agency said on Wednesday.


The U.N's Food and Agriculture Organisation said this month its measure of food prices had hit its highest since records began in 1990, topping levels seen in 2008 when price spikes sparked deadly riots in some countries.

The WFP, which brings food assistance to over 90 million people and sources most of its food from local countries it operates in, said it expected to have a budget of around $6 billion this year, about the same as in 2010.

"Our donors are in this era of austerity and they are rightly seeking ... that we stretch every penny we get from them. It is tight," Sheila Sisulu, deputy executive director with the WFP, told Reuters.

"It is not crisis proportions yet. But we suspect that if the high prices get worse and we are forced to go into the global market it will be more than tight, it could be serious."

Sourcing grain locally, the WFP says, helps tap into the potential of local agriculture and also boosts their economies. Sisulu said southern Africa and parts of eastern Africa were reporting good harvests.

"At the moment local purchases are in fact very competitive compared to buying elsewhere on the open market," she said on a visit to London. "We are cautiously optimistic."

She said the WFP was monitoring market movements closely.
"If it (price volatility) continues for a long time and the surpluses are run down in the local markets, then we will be hit by that."

With world wheat supplies so tight and grain demand so strong any new hiccup in a major producing area could send European prices near or beyond the all-time highs hit in 2008.

"The analysis out there is saying that the impact on wheat is not as bad as it was in 2008," she said.
"But given the floods in Pakistan in particular and of course in Australia, now Brazil, all the major grain producing countries that also produce wheat we might see a problem as the year goes on."

High food costs have triggered violent protests in North African countries contributing to unrest which toppled Tunisia's president, while prompting neighbouring states to speed up wheat purchases to secure supplies.

"If you overlay the volatility in the food market with very high youth unemployment then the potential of a blow up is very great," Sisulu said. "The majority of countries in Africa have youth unemployment but not all of them are suffering high food prices thankfully."

DROUGHT FEARS

Sisulu said growing signs of drought in the Horn of Africa could lead to food shortages in Somalia, Sudan and Ethiopia.

"Certain regions that are prone to drought and weather variation are showing signs of cyclical food shortages," she said. "The Horn of Africa immediately comes to mind.

"Much as they (Ethiopia) have some areas where they have enough grain, the Somali area is also being affected not only by the fighting but also by what seems like a drought developing."

Source: Reuters

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