UK: April 4, 2008


LONDON - Staple food prices will rise for some years, but should eventually fall to historical averages as harvests increase, biofuel company executives said on Thursday.


Soaring demand for better quality food from rapidly industrialising emerging markets such as China, supply shortages, increased demand for biofuels, and a surging appetite for food commodities by investment funds, have combined to push prices of basic foods higher and higher in recent months.

Stephane Delodder, managing partner of Netherlands-based consultancy iFuel Corporate Advisory, told a conference the problem of rising food prices would persist for some years.

Market forces should eventually help rebalance supply and demand, especially in markets which are not highly regulated, but this could take some time.

"(It could be) a few years at most before the situation returns to normal," Delodder said.

He said grains and oilseed futures markets, which have corrected down recently after meteoric rises, may already be signalling that supply will rise as farmers raise plantings.

US soybean prices fell sharply this week after a US government forecast that American farmers would plant 18 percent more of the oilseed in the spring, at the expense of last year's superstar of the food commodity markets, corn (maize).

The rush to farm more soy, used to make animal feed, cooking oil and the renewable fuel biodiesel, follows record highs this year on Chicago Board of Trade futures.

The decline in soybeans turned the spotlight back to corn, which was seeded in the most number of acres in the United States last year since 1944 amid the strong demand from the ethanol biofuel industry.


BIOFUELS

Delodder said that as farmers planted more crops in response to rising prices, prices were likely to revert eventually to their historical mean levels:

"Prices tend to go back to their long-term averages."

Victor Deike, biofuels development manager with Belgium-based Novus Europe, an animal nutrition company, agreed:

"Big harvests would put less pressure on prices."

But he said food production faced structural problems and climate change could drag on food production, adding to upward price pressure.

"If there's no water, and crops are not irrigated, yields are disastrous," he said.

Deike said so-called "second-generation" biofuels -- biofuels made from non-food crops and waste -- should take the heat out of food prices as many did not compete with food for land.

The jatropha plant has been cited as one possible feedstock for biofuels production and biofuels could also be manufactured from miscanthus, a type of grass, and reed canary grass.

But it is still unclear if production of such renewable energies will take off.

Jean-Marc Jossart, secretary-general of the Belgium-based European Biomass Association (AEBIOM), said opinion was divided over whether second-generation biofuels could take the pressure off food prices.

"Second-generation biofuels might reduce the competition for food," he said. But he said crops such as miscanthus could also reduce the availability of land that could be used for food.

Soaring food prices and tight supplies will heighten the debate surrounding genetically modified crops, which use genetic engineering to raise yields and production, Deike said.

The delegates were speaking on the last day of the two-day Outlook 2008 conference, organised by Agra Europe.

(Reporting by David Brough; editing by Chris Johnson)


Story by David Brough


REUTERS NEWS SERVICE