Food Prices Reach Record High

World food prices rose 2.2% in February from the previous month to a record peak, the United Nations’ food body said Thursday, as it warned that volatility in oil markets could push prices even higher.

The Food and Agriculture Organization price index rose by 2.2%—the eighth consecutive rise since June—to an average of 236 points last month, the highest record in real and nominal terms since the agency started monitoring prices in 1990.

Global cereal supplies are also expected to tighten sharply this year due low stock levels, the FAO said. The body raised its estimate for world cereal production in 2010 by eight million metric tons from its December estimate to 2.2 billion tons but said it expects that to be outpaced by an 18 million-ton increase in world consumption.

But while the world isn’t yet facing a food crisis, the secretary of the FAO’s Intergovernmental Group on Grains, Abdolreza Abbassian, said the recent rise in Brent oil prices to above $120 a barrel could create the same potent mix of factors that pushed grain prices to record highs three years ago.

“The oil factor, which has so far not been a driving factor this season, could become an element like it was in 2008,” he said. “It’s very unlikely we will see a food crisis in 2010-11 but we can’t exclude such a situation in 2011-12.”

Crude prices have risen sharply in recent days due to escalating unrest in Libya and the Middle East. Although not yet near its peaks, analysts have warned that if the unrest spreads to other important producers, such as Saudi Arabia, prices could spike above $200 a barrel.

International export prices of major grains are already more than 70% higher than this time last year after a succession of weather problems in key producers slashed hopes for the world harvest. The FAO’s cereal-price index, which includes prices of main food staples such as wheat, rice and corn, rose by 3.7% to 254 points.

Mr. Abbassian said the increase in oil prices has made planting crops such as corn more attractive as they can be converted into fuel substitute ethanol, taking away crucial acreage from crops like wheat next season. The FAO predicts wheat production will rise by about 3% in 2011, broadly in line with other organizations, but Mr. Abbassian said a minimum increase of 3.5% is needed to ensure sufficient output.

“With oil prices rising, it could encourage a bigger corn crop at the expense of other crops,” he said. The FAO’s price index for oils and fats rose marginally to 279 points in February, just below the peak recorded in June 2008.

Food-price inflation has already been blamed for contributing to a wave of unrest in the Arab world that has unseated the long-standing presidents of Tunisia and Egypt and left thousands dead on Libya’s streets amid a brutal government crackdown. Of all the commodities groups monitored by the FAO, which include cereals, dairy, meat and oils, only sugar dipped last month to 418 points, slightly below the previous month but still 16% higher than February 2010.

Charities warn that the rising cost of staples could push the number of chronically hungry people in the world above one billion, as happened in the wake of the last food crisis. “Millions more people are sliding into poverty as they struggle to afford basic food supplies and more and more are at risk of going hungry,” said Oxfam’s food-policy adviser Thierry Kesteloot.