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Why World Food Prices May Keep Climbing

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In February, world food prices reached the highest level on record. Soaring food prices are already a source of spreading hunger and political unrest, and it appears likely that they will climb further in the months ahead.

As a result of an extraordinarily tight grain situation, this year's harvest will be one of the most closely watched in years. Last year, the world produced 2,180 million tons of grain. It consumed 2,240 million tons, a consumption excess that was made possible by drawing down stocks by 60 million tons. To avoid repeating last year's shortfall and to cover this year's estimated 40-million-ton growth in demand, this year's world grain harvest needs to increase by at least 100 million tons. Yet that would only maintain the current precarious balance between supply and demand.

To get prices back down to a more acceptable level, it would take perhaps another 50 million tons for a total increase of 150 million tons. Can the world boost this year's grain harvest by 150 million tons or even 100 million tons? It is possible, because we have had annual harvest jumps of 150 million tons twice over the last two decades, but this year it does not appear likely.