Mumbai: Rising agricultural commodity prices may usher in a period of "agflation", with food prices forecast to reach record highs in 2013 and to continue to rise well into Q3 2013, warns agricultural bank, Rabobank.
Unlike the staple grain shortage 2008, this year's scarcity will affect feed intensive crops with serious repercussions for the animal protein and dairy industries, Rabobank said in a report.
Agflation describes generalised inflation led by rises in Agricultural commodity prices.
According to the report, current price inflation is the result of weather-driven events in large exporting nations including drought in the US and similar water shortages in Russia and South America.
The rally in grain and oilseed prices will have a significant knock-on effect on other F&A supply chains, especially the animal protein industry, resulting in rising meat prices.
"The impact on the poorest consumers should be reduced this time around, as purchasers are able to switch consumption from animal protein back towards staple grains like rice and wheat. These commodities are currently 30 percent cheaper than their 2008 peaks.
Nonetheless, price rises are likely to stall the long-term trend towards higher protein diets in Asia, the Middle East and North Africa. In developed economies - especially the US and Europe - where meat and corn price elasticity is low, the knock-on effect of high grain prices will be felt for some time to come," Global Head of Agri Commodity Markets Research at Rabobank Luke Chandler said.
Due to the long production cycles of the animal protein and dairy industries, the affects of grains shortages will be more sustained as herds, especially cattle, take longer to rebuild, maintaining upward pressure on food prices.
However, food makes up a smaller proportion of budget spend in such countries, so the current period of agflation should not lead to the unrest witnessed in response to the shortage in 2008, the report said.

As per Rabobank's estimates, the Food and Agricultural Organisation (FAO) Food Price Index will rise by 15 percent by the end of June 2013.
For demand rationing to take place prices have to stay high, the report said. As such Rabobank expects prices - particularly for grains and oilseeds - to remain at elevated levels for at least the next 12 months, it says.
Rabobank warns that increased government intervention will likely encourage further increases in world commodity and food prices.
The global food stocks have not been replenished since 2008, leaving the market without any buffer to adverse growing conditions. Efforts by governments to rebuild stocks are likely to add to food prices and take supplies off the market at a time when they are most needed, the report said.


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