Rising food prices, which climbed a record high of 25% in 2010, is adding to inflationary pressures in the Middle East and affecting a significant population in many countries in the region, QNB Capital said in a release. According to QNB Capital, the index of global food prices maintained by the UN Food and Agricultural Organisation (FAO) rose by 25% in 2010. The index surpassed the previous record in June 2008 and then increased by a further 9.9% in the first two months of 2011. According to the World Bank, the world is nearing a “breaking point” as food prices are squeezing the poorest in society; those who spend a substantial part of their income on food. This phenomenon is also affecting a significant part of the population in many countries in the Middle East. Food prices are near record levels and still expected to increase further. The World Bank’s own food price index is near record levels, having increased 15% between October 2010 and January 2011. The World Bank further expects prices to remain high this year. In line with this, the Economist Intelligence Unit (EIU) is forecasting a 19% rise. While the last food price spike coincided with an economic boom, the current spike comes when many governments in the region are struggling with deep deficits, still a result of the global financial crisis. In the current situation, affected governments have less bandwidth to respond to food price inflation by boosting food subsidies or wages. Rising income levels in countries such as China, unseasonal weather in many countries and fuel price spike are pushing up food prices, QNB Capital said. The inflationary impact of rise in food prices varies across the region and depends on the share of household food expenditure. In Egypt for example, food represents 39.9% of the Consumer Price Index (CPI), compared to just 13.2% in Qatar. Food price increases will correspondingly roughly triple the inflationary impact in Egypt compared to Qatar. Moreover, current food price increases are proportionally greater for basic food stuffs, than for more expensive and processed foods. This significantly impacts poorer consumers who tend to buy more basic food, such as rice. In Egypt, the food-component of the CPI increased by 17.2% in 2010 compared to 3.8% in Qatar. “As the Middle East relies mainly on food imports, the region is particularly vulnerable to food security concerns. If this trend of rising food prices continues, Arab countries will likely be forced to increase their strategic food reserves and develop technologies to boost domestic production to meet growing food demand,” QNB Capital said. Some countries are already investing in agricultural land abroad to help secure food supplies, it said.

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