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Food Prices to 'Surge' on Demand, Weather Shocks, Nomura Says
2010-09-08 16:38:20.221 GMT
By Chris Kay
Sept. 8 (Bloomberg) -- Food prices probably will "surge"
in coming years because of increasing demand, potential
environmental shocks and use of crops to make biofuels, said
Nomura Holdings Inc.
Most models underestimate future demand "significantly"
by failing to account for income disparities in developing
nations, Nomura said in a report today. Weather-linked events
such as El Nino, climate change and water scarcity may cut crop
yields as much as 30 percent in parts of Asia, it said, citing
the Intergovernmental Panel on Climate Change.
El Nino, a climate phenomenon occurring on average every
two to seven years and lasting around 12 months, causes severe
flooding in Central and South America and may lead to droughts
in Australia, Asia and South Africa, the report shows. Tokyo-
based Nomura also pointed to government subsidies aimed at
promoting biofuels, which become more viable when oil prices
rise.
"With strong secular global demand for food, it may not
take much of a shock to trigger a surge in food prices," Nomura
economists and strategists including Robert Subbaraman said. "A
lesson from the food-price surge in 2007-08 is that a rise in
food prices can quickly spread globally and feed on itself due
to rising protectionism in agriculture, increasing speculation
in food commodities and the tightening link between food and oil
prices."
Bangladesh is the country most vulnerable to a surge in
food prices, followed by Morocco, Nomura said, citing an index
of 80 nations that it compiled. The gauge ranks New Zealand as
least vulnerable.
"We would recommend adding an outright long position in a
basket of agricultural commodities via a structured note," said
Nomura, referring to a bet on higher prices. "This could be
designed to absorb intra-month volatility, paying a coupon
related to the performance of the agricultural commodities."
For Related News and Information:
Top commodities: CTOP <GO>
Top worldwide stories: TOP <GO>
Commodity curves: CCRV <GO>
--Editors: Dan Weeks, Alastair Reed.
To contact the reporter on this story:
Chris Kay in London at +44-20-3216-4703 or
ckay5@bloomberg.net
To contact the editor responsible for this story:
Claudia Carpenter at +44-20-7330-7304 or
ccarpenter2@bloomberg.net.
