Food prices rise, prompting fears of another world food crisis

Is another world food crisis in the works? The UN's Food and Agriculture Organization suspects the answer may be "yes," thanks in part to nasty world weather conditions. 

The FAO's Food Price Index climbed by 6 percent in July 2012, primarily driven up by an increase in grain and sugar prices, although international prices in meats and fats were little changed. 

Corn and wheat were primarily affected, but a price jump in these popular grains could lead to serious trouble down the road, hearking back to the food riots of 2007 and 2008. 

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FAO senior economist and grain analyst Abdolreza Abbassian told Reuters that there "is potential for a situation to develop like we had back in 2007/08."

"There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn't happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible."

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According to the FAO, dismal corn supplies in the USA partially explain the jump in prices: maize prices rose almost 23 percent for the month of July, precipated by drought conditions and extremely hot weather. According to Bloomberg, the US corn crop was rated by the government as the worst since 1988, a particularly dry year. 

Wheat posed another problem: Russian wheat quotations rose by 19 percent, partially due to poor production, and partially because the market anticipates using wheat to fill the gap poor corn supplies will create. 

How is the FAO Food Price Index measured, anyway? It's calculated by measuring international change in a "basket" of common food commodities. You can read a good explanation of how market basket analysis works here, via Information Management.