GRAIN ON FIRE, SO IS THE PRICE

The World Bank has called on grain exporting countries not to follow Russia's example of imposing restrictions on exports. A ban on the supply of wheat, according to the bank, may cause a global food crisis, which may be worse than its predecessor, which enveloped the world in 2007-2008. In addition, it may cause a new wave of economic problems in a global economy still reeling from the recent financial crisis.

Meanwhile, "since early June, wheat prices have soared by a frightening 50 per cent," says 'Time'. According to the HSBC banking group, this is the largest surge in 30 years. The drought in Russia, Ukraine and Kazakhstan, which account for 26 per cent of world wheat exports, raises concerns about possible interruptions to supplies, as well as excessive price hikes.

The western press abounds with predictions of a new food crisis and its consequences. "The anticipated growth in prices for wheat and barley will hit household budgets and could lead to higher bank interest rates," 'The Independent' said. "Another food crisis is possible," 'The Financial Times' writes, adding that "the embargo was introduced in Russia at a time when the commodity market is strained. As a result, scared traders are trying to make major purchases. Other nations may follow Moscow's suit to protect their domestic markets. Despite the fact that a big harvest is expected in some countries - Australia and Argentina, there is a danger that the market may collapse and grain prices rise."

Can soaring wheat prices really lead to a repeat of the food crisis of 2007-2008? So far, according to several analysts, a repeat of the crisis of two years ago is not expected, because stocks of wheat are large enough and major manufacturers like the US expect a good harvest.

At the same time, the US has sharply reduced its forecast of world wheat production. Reviewing data from Russia, Ukraine and Kazakhstan, the US Department of Agriculture has lowered its forecast for the world output of wheat. Experts at the Department of Agriculture estimate that 645.7 million tons of wheat will be produced internationally, which is 15.3 million tons, or 2.3 per cent lower than the previous forecast.

The heat and drought in Russia burned a quarter of the grain crops and, according to Russian President Dmitriy Medvedev, this year's harvest is expected to decline by 15 per cent. In this context, Moscow imposed a ban on the export of wheat until the end of the year.

According to the US Department of Agriculture, Russia is the third largest wheat exporter in the world after the US and Canada. Other major suppliers, such as Kazakhstan and Ukraine, have also been affected by the drought and have lowered their forecasts by 18 and 15 per cent respectively.

Furthermore, following Russias' lead, Ukraine is considering limiting the export of grain, which could add fuel to the fire of burning prices.

Experts at the World Food Organization believe that statements about a possible food crisis are greatly exaggerated - there is no threat of famine! However, the decline in projections of global grain production has turned out to be more significant than expected. But there is no fundamental justification for a continuation of rising prices, according to analysts. First, the damage caused by the disaster can be fully compensated for by available stocks. Second, optimism is added by increased grain yield forecasts from the US, India, Australia and Uzbekistan.

Meanwhile, the current drought could also strike at the harvest of 2011. Russian meteorologists warn that the dry summer will have a negative impact on next year's winter crops.

According to the Russian Weather Centre chief, Roman Vilfand, rains are expected only in the last ten days of August, but they will not be enough to moisten the desiccated soil for sowing winter wheat.

Thus, if the harvest is poor, the rise in the price of wheat will continue and a multiplier effect will not be long in coming. Traders could switch to alternatives such as rice and corn, which, in turn, may lead to higher prices for other commodities and cause food prices to soar. This view is shared by HSBC Global Research analysts. They note that since wheat is at the beginning of the food chain, a hike in its price may adversely affect prices on the food market as a whole.

By the way, the world's food companies are already talking about the possibility of raising the prices of their products due to higher raw food costs.

The costs of powdered milk, cocoa, coffee and wheat have grown at double-digit rates over the past few months, which has prompted large food companies such as Danone SA, Unilever PLC and Kraft Foods Inc., to become more cautious in their forecasts for the next two quarters, according to The Wall Street Journal.

We would not want to be pessimistic, but apparently, there is little ground for optimism. At a time when the world's population is growing inexorably, the question of "feeding the people" promises to become the most urgent challenge facing the world in the foreseeable future. In the present situation, we can only hope that exporters and importers of grain will take coordinated and balanced measures, avoiding panic in anticipation of food shortages in their countries. It is not so much the deficit as panicky reactions that can cause a crisis, even if there are no objective reasons for one.