Tags: Cargill Govt Food-Inflation Controls May Backfire

Cargill: Govt Food-Inflation Controls May Backfire

Tuesday, 15 Feb 2011 12:37 PM

Government efforts to control prices, now that food inflation has risen to the top of political agendas across the globe, may hamper a needed increase in supplies, a Cargill director warned on Tuesday.

Paul Conway, senior vice president and board member with the U.S. agribusiness and trading giant, said it was clear that political instability in the Middle East was linked to food inflation and that the issue was set to be at the top of the G-20 agenda.

"The good news is we believe we will see increased investment in infrastructure. We will see increased R and D (research and development) investment to improve yields, a second green revolution if you like," he said.

He was wary, however, of any attempts by governments to hold down prices to help the urban poor, noting their needs were often given priority over those of rural farm communities.

"Usually the urban poor trump the rural farm community because they have this tendency to riot. Governments worldwide tend to fix prices so the signals the marketplace needs simply do not get through to farmers," he said.

Conway said he was encouraged that Russia was one of only a few governments to impose an export ban during the current surge in food prices, in contrast to the 2007/08 crisis.

"In 2008 there were many governments around the world that did that. There is a realization that that type of action in the short term may help your domestic audience, (but) in the longer term it is counterproductive," he said.

 

COCOA TAX

Conway also cited actions taken in top cocoa grower Ivory Coast as an example of government action that has hindered the expansion of domestic production.

"In Ivory Coast, which is undergoing a lot of turmoil at the moment, the government has consistently taxed the export of that product to a level that farmers get no incentive to look after their crop," he said.

He said it was left to companies such as Cargill to work with local producers to improve productivity, yield and quality of the product.

Conway said the rise in prices was largely supply-driven, with demand only modestly higher.

"When we sat down as a company in April 2010 and surveyed the world of commodities we were extremely bearish.

"What happened over the next six months was first of all in Australia, then in Russia and Ukraine, and then in Germany and France and then in the United States, we saw 80 million tonnes (metric tons) of grain knocked off our estimates."

Conway said he believed genetically modified crops could help meet an expected 40 percent rise in demand for food over the next 20 years.

"We do not produce GM product, but we think they are one of the tools in the toolbox ... particularly in a water-stretched environment to help provide that additional food for the world," he said.

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Government efforts to control prices, now that food inflation has risen to the top of political agendas across the globe, may hamper a needed increase in supplies, a Cargill director warned on Tuesday. Paul Conway, senior vice president and board member with the U.S....
Cargill Govt Food-Inflation Controls May Backfire
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