Confirming many policymakers' worst fears, the Food and Agriculture Organisation today forecast that world food prices are set to stay at elevated levels for the rest of the current year and into 2012, despite prospects of a rebound in crop production from the adverse effects of bad weather in 2010.

Suggesting that crops are expected to barely meet consumption, the latest Food Outlook – a biannual report of FAO – cites a sharp rundown on inventories and only a modest overall production increase for the majority of crops as reasons for continuing strong prices.

The FAO Food Price Index averaged 232 points in May from a revised estimate of 235 points in April, but was still 37 per cent above May 2010.

The northern hemisphere has already entered the period of crop planting and therefore, the next few months will be critical for crop progress. Weather will be the major driver of food markets until harvest time in September.

Stubbornly high food prices are posing a threat to many low-income food deficit countries, the report pointed out.

Current prospects for cereals in 2011 point to a record harvest of 2,315 million tonnes, an increase of 3.5 per cent over 2010, which marked a one per cent drop over 2009. While world wheat output is set to expand by 3.2 per cent mainly because of return to improved yields in Russian Federation, coarse grains are set to climb 3.9 per cent. Rice production may rise by an expected 2 per cent to 463.8 million tonnes.

Meat prices are hitting record highs following tighter availability. World meat production will rise by a mere one per cent to 294 million tonnes in 2011, constrained as it is by high feed prices, disease outbreaks and depleted animal inventories.

FAO report said the futures market in agricultural commodities is under scrutiny. Even if not justified by market fundamentals, flow of speculative capital into commodity derivatives market is believed to drive up prices.

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