Warning of new wave of world food inflation

THE WORLD economy faces a fresh wave of food inflation as the price of meat surges on the back of record prices for corn and soyabean, the main fodder crops for farm animals.

Both crops jumped to fresh highs yesterday after US farmers said heavy rain and low temperatures over the past six weeks had damaged millions of acres of crops and meant several million more acres had been left unplanted. Traders said rising prices for corn and soyabean would reverberate through the food supply chain, pushing up the cost of meat, poultry and dairy products. The surge in corn prices would further affect a range of foodstuffs, including breakfast cereals and sweeteners.

The United Nations Food and Agriculture Organisation (FAO) yesterday warned that higher feeding costs, strong demand and tight supplies were pushing up the retail prices of meat. "In the face of strong demand, meat supplies are tight and this situation is contributing to the increase in prices," it said.

"Higher feed costs are . . . pushing up retail prices," the FAO's monthly food price index report also said.

In Chicago, live cattle futures for delivery in April 2009 - a key contract - surged to 115.5 US cents a pound, the highest for any cattle contract traded in the US.

Meat prices have increased by almost 15 per cent in the past six months, accelerating from a 5 per cent rise in the previous six-month period, according to the FAO.

The rise in meat prices will be felt most in richer countries, such as in Europe and the US.

Poor countries rely more on staples such as wheat and rice and suffered during last year's price surge in those cereals. Nestlé - the world's largest food company - took a more reassuring tone on commodities prices yesterday, saying raw materials should show "stability" in 2009 compared with this year.

In an investor presentation, the company said dairy and cereal prices would probably be lower than in 2008, but would not return to last year's levels.

- (Financial Times service/Bloomberg)