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Food prices set to stay high, says UN food agency

Corn crop is Mississippi
Image caption Many crops - including cereal crops - are on target for record production, but prices will stay high

Global food prices will remain high and volatile throughout this year and into next despite record food production.

The United Nations Food and Agriculture Organisation (FAO) twice yearly Food Outlook analysis says rising demand will absorb most of the higher output.

It says its index of food prices in May was at 232, only five points below February's record high of 237.

The FAO says higher food prices could mean poor countries will see food import costs rise by up to 30%.

That would mean them spending 18% of their total import bills on food this year, compared with the world average of 7%.

The organisation says the next few months will be critical in determining how major crops will fare this year.

Tight situation

The FAO's May index - which measures price changes in a range of essential foodstuffs, including cereals, oilseeds, dairy, meat and sugar - was 37% higher than a year ago.

David Hallam, director of the FAO's markets and trade division, said: "The general situation for agricultural crops and commodities is tight, with world prices at stubbornly high levels, posing a threat to many low-income food deficit countries."

The FAO says although prospects are encouraging in some countries, such as Russia and Ukraine, weather conditions - either too much or too little rain - could hamper wheat and maize production in Europe and North America.

In 2010, drought led Russia to ban exports of cereals and Ukraine to limit overseas sales. Better weather there this year means exports should return to normal and globally cereal production is expected to rise to a record.

Record production is also expected this year for other staples, including rice and fish.

'Remarkable events'

The FAO report says that earlier in the year there was a good chance that supplies and prices would return to a more comfortable situation.

However, there then followed what the FAO called "a remarkable turn of events", including unfavourable weather and a host of unpredictable factors including the catastrophe in Japan and an unprecedented wave of political unrest in North Africa and the Middle East.

The big increase in the oil price has also had an impact. Soaring oil prices push food prices higher as they increase the cost of food production and transportation.

The role of commodities traders is increasingly coming under the spotlight with some blaming the speculative element of their activities for pushing prices artificially high.

The report looks into the subject, and concludes that "much has been done to improve market transparency but more is needed".

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