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Food prices dropping from all-time highs: World Bank

  • Published at 04:24 am August 5th, 2013
Food prices dropping from all-time highs: World Bank

Prices of internationally traded food declined for the third consecutive quarter since their historical peak in August of 2012, according to the World Bank Group's quarterly report Food Price Watch released last week.

The report shows global food prices continued to fall between February and June 2013 – a trend observed since the recent all-time peak in August 2012 – but prices were only 12% below the August peak.

Higher production, declining imports and lower demand generally pushed export prices down although international markets continue to be tight for corn.

Current prices of wheat reflect expectations that world production will rebound this year from last year's declines. Rice prices continued to decrease moderately from a combination of offsetting factors.

Downward price pressures from good harvests in Thailand and Vietnam counteracted upward pressures from increasing demand and thinner supplies in India, Pakistan, the United States, and South America.

Looking ahead, the report says uncertainty in the international market remains as unfavourable weather conditions in northern and central Europe, the Russian Federation and China may affect the prospects of a rebound in the world wheat production.

The current situation in Egypt may also impact international markets of wheat since Egypt is the world's top wheat importer.

Meanwhile, the report says domestic prices generally followed seasonal trends but wide variations continued.

The report noted that food subsidies brought little benefit to poor, who are the prime victims of food price increases. Referring to the recent decisions by the governments of India, Indonesia and Benin to extend consumer food subsidies, the report said such policies remain in vogue.

Domestic policies worth watching include public procurement policies, but also consumer price subsidies, which, far from being a thing of the past, continue to be used even though subsidies often bring meagre benefits to the poor, high fiscal costs, corruption episodes and unproven nutritional effects.

According to the report, developing countries used universal food subsidies as major components of their poverty alleviation strategies between the 1950s and 1970s.

Lately, rising food prices and recurring price spikes have revived the popularity of such subsidies, leading countries with high poverty and weak safety nets to make food available at below-market prices, for example by subsidizing imports or giving vulnerable groups access to food discount stores.

Yet, the long-held consensus regarding consumer food subsidies, just as with electricity and fuel subsidies, is that when untargeted and poorly implemented, they are not effective in helping the poor. They can also distort market prices and agricultural production, while leaving nations with a hefty fiscal bill.

Data from the Middle East and North Africa, the region most dependent on generalized subsidies, illustrate the harmful equity and fiscal implications of consumer subsidies.

According the International Monetary Fund estimates, only 35% of the amount spent on subsidies there reaches the bottom 40% of the population.

Country-specific estimates also confirm that the share of benefits from food subsidies reaching the poor is a fraction of total benefits.