The World Prices for Food Stuffs Continue to Rise

The  FAO data suggest that in January 2011 the food prices on global markets hit their historic maximum.

Calculated on the basis of the cost of the basket of basic food products – grain, rice, meat, sugar, the respective index climbed up 3.4% compared with December 2010 and hit 231 points. This has become the highest level ever registered over the whole period of its measuring by FAO since 1990, with the prices being on the upsurge for the seventh straight month.

The only index that did not undergo sizeable changes was meat prices. Grain prices soared 3%, which has become the maximal index since July 2008. The world prices for milk and dairy products advanced 6.2%, sugar prices were up by 5.4%. The main driver behind this was natural calamities in different parts of the world, which resulted in contraction of the offer worldwide. More specifically, the price rise for wheat is partly associated with the draught in Russia, the one for sugar – with poor harvest in Brazil. FAO forecasts that in 2011 sugar prices should further increase by one-third, wheat prices – by 41%, and corn prices – by 47%.

On January 27, 2011, the Sub-Commission on customs-tariff and non-tariff regulation and protective measures in foreign trade chaired by First Vice-Premier V. Zubkov ruled to recommend the Customs Union’s Commission, which since 2010 has set the level of import duties in the territory of RF, Kazakhstan and Belarus, to abolish the effective 5% import duties on barley, oats, wheat, rye, and corn.

In addition, it was proposed to zero customs duties on onion, carrot and beet roots, which presently are at the level of 15%. It is planned to keep the said duties on zero level through June 30, 2011, which should help attract to the domestic market additional volumes of supplies of these products and maintain the price stability on the consumer market.

Similar measures were undertaken in the autumn of 2007, when import customs duties were lowered for 6 months from 15% to 5% on cabbage, carrot and beet roots, and in the autumn of 2010 when the government commission ruled to temporarily (for 6 months) abolish import duties on buckwheat, cabbage and potatoes whose production plunged dramatically because of a draught followed by a drastic prices rise for those products.

Other announced price control measures were exchange sales of grain out of the intervention fund since 4 February 2011.

As well, the seasonal lowered import duty on unrefined sugar in the territory of the Customs Union (USD 50–250/ton) should be introduced not from 1 May, as planned before, but from 1 March. In the meantime, the effective increased rate is USD 140–270/ton, due to the sugar prices at NYMEX. Despite a sharp rise (by some 40%) of Russia’s areas for planting sugar beet in 2010, production of sugar plummeted by results of 2010 by more than 15% because of shortages of the raw materials caused by the draught.

The Sub-Commission’s rulings should be considered by the Customs Union’s Commission.

N.P. Volovik, Head of Foreign Trade Department