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Analysis - Have falling markets solved the global food crisis?

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By Laura MacInnis

GENEVA, Oct 17 (Reuters) - At first sight, it seems like good news for those fighting hunger around the world: the spikes in commodity prices that triggered food riots this year have been all but erased amid the recent financial turmoil.

But relief officials now have another fear -- that distracted donors will forget that the problem goes much deeper, and stop devoting time and money to an emergency that will only be worsened by a now-looming recession.

"There is no automatic correlation between what happens in the wheat futures market in Chicago and the price of wheat flour in Afghanistan," said John Holmes, the top U.N. humanitarian aid official, who also coordinates a task force on the food crisis.

International food prices hit nine-month lows in September and have since tumbled further as investors pulled their money from turbulent markets.

In the past three weeks alone, corn futures <Cc1> have fallen 32 percent and soybean futures <Sc1> 28 percent, according to Thomson Reuters data.

"What we fear is that people will look at those (commodity) prices and think that the crisis is over," Holmes said. "We still regard it as a very urgent crisis and a major emergency."

Many food commodities are now trading at around half their peaks in June, when the United Nations called an emergency summit to tackle a crisis that had sparked protests, strikes and riots in countries including Cameroon, Mozambique, Senegal, Haiti, Peru, Bangladesh, Indonesia and Afghanistan.

At that time, the U.N. World Food Programme called costlier food a "silent tsunami" threatening millions with starvation.

Now, the WFP says lower prices mean it can afford better nourishment for the 90 million people it helps feed around the world. "We may be able to buy slightly more food for our beneficiaries," spokeswoman Emilia Casella said.

A BILLION GO HUNGRY

The aid group Oxfam estimates 967 million people worldwide now suffer from hunger -- 119 million more than before high energy prices, biofuels, greater emerging market demands and speculation started to push up staple food costs.

Siwa Msangi, a research fellow at the International Food Policy Research Institute in Washington, said those stresses have not disappeared:

"There has probably been less financial market activity involving commodities, due to the overall economic situation, and some consumer demand may have dropped off. But the longer-term drivers of upward price pressure are still there."

Donor governments at the U.N.'s Rome summit pledged $12.3 billion to help boost agricultural productivity and encourage farmers to plant more, especially in poor countries where huge numbers of agrarian workers are moving to cities.

But only $1 billion of that has been paid out so far, as bank failures and market stresses have distracted governments.

Jacques Diouf, head of the U.N. Food and Agriculture Organisation, said he feared that the financial crisis might cause international commitments to invest in seeds, fertilisers and other yield-boosting technologies to "evaporate".

"The great uncertainty now enveloping international markets and the threat of global recession may tempt countries towards protectionism and towards reassessing their commitments to international development aid," he said.

The U.N. food crisis task force, whose members include U.N. Secretary-General Ban Ki-moon and World Bank President Robert Zoellick, will meet again in the coming weeks to discuss the new face of food insecurity, Holmes said.

Pavel Vavra, a trade and agriculture expert at the Organisation for Economic Cooperation and Development, warned that recession may worsen hunger problems in poor and vulnerable countries, where people stand to suffer more joblessness and hardship even if staple food prices fall.

He said many families in poor countries, whose food costs bear little relation to international market prices, still face exorbitant costs for food, and that prices could easily jump again, especially if storms or droughts affect crop yields.

Rice -- a staple in much of Asia -- remains relatively pricey, with prices still up 15 percent this year.

"The prices are shooting down because the demand is pulling back," Vavra said. "Whether it is going to last is difficult to predict. The situation is fairly volatile."

(Editing by Kevin Liffey)

Reuters - Thomson Reuters Foundation
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