Mideast Turmoil Risks Fueling Record Global Food Inflation

Global food prices rose for an eighth straight month on the back of a tightening supply of wheat and other cereal crops, and the current spike in oil costs could drive record prices even higher, the United Nations' Food and Agriculture Organization warned today.

The FAO's food price index climbed 2.2. percent in February, with the costs of every food group but sugar showing an increase, the agency said. Food prices are now at the highest level since the U.N. began to measure them, both in real dollar terms and adjusted for inflation.

Moreover, the ascent of petroleum prices -- sparked by the turmoil gripping Libya and other countries in the oil-producing Middle East -- risks boosting transportation costs in ways that will make food even more expensive.

"Unexpected oil price spikes could further exacerbate an already precarious situation in food markets," said David Hallam, director of the FAO's Trade and Market Division. "This adds even more uncertainty concerning the price outlook just as plantings for crops in some of the major growing regions are about to start."

Last month, United Nations experts called for greater investment in agriculture from both governments and the private sector. They said that the underinvestment in farming -- combined with weather-related disasters like droughts, floods and fires and political instability that disrupts supply chains -- was challenging the world's food security.

Though the United States' strong domestic agricultural production can protect Americans to some extent from the vagaries of global food markets, that same trend can be seen here as well, if not as painfully.

Despite a historically tame level of U.S. inflation amid the weak job market, the Labor Department said that in the 12 months that ended in January, its food index rose 1.8 percent. The cost of food eaten at home in that time rose 2.1 percent.

According to the FAO figures, global food inflation is much worse.

International export prices for wheat and other grains last month were up 70 percent from a year earlier. In February alone, the cereal price index, measuring such food staples as wheat, rice and maize, rose by 3.7 percent.

Dairy prices were up 4 percent from February, meat prices were up 2 percent and the costs of oils and other fats climbed as well.

While the FAO estimates that 2010 world cereal production came in 8 million tons better than it anticipated in December -- if still lower than in 2009 -- the agency has raised its forecast for 2010-2011 cereal consumption by 18 million tons.

In the U.S., the Federal Reserve on Wednesday reported that its business contacts around the country are starting to pass on the rising costs of food and other commodities to their customers -- just the latest sign that inflation here could take off.

Fed Chairman Ben Bernanke told Congress this week that, at least for now, the Fed expects the weak job market and high unemployment -- which keep wages low -- to keep prices from rising too quickly.

But European Central Bank President Jean-Claude Trichet today cited climbing food costs as one of the reasons the ECB might raise eurozone interest rates next month.