By Catherine Hornby
ROME (Reuters) - Crop failures and speculation - not market fundamentals - were the main causes of recent price volatility in grain markets and there is no sign of an impending food crisis, the U.N. Food and Agriculture Organisation (FAO) said on Friday.
The charges were made in a draft report after extraordinary meetings of the FAO's Inter-Governmental Groups (IGG) on grain and rice.
While acknowledging the sudden increase in prices and the deterioration of prospects for cereal markets in recent months, for wheat in particular, the IGG groups concluded that this was not an indication of an impending food crisis.
The groups held extraordinary inter-sessional meetings as the FAO, in its separate report on food security and crop prospects, said world cereal output this year is expected at 2.239 billion tonnes, slightly higher than forecast previously and sufficient to cover projected global demand in 2010-2011.
"Unexpected crop failure in some major exporting countries followed by national responses and speculative behaviour, rather than global market fundamentals, have been the main factors behind the recent escalation of the world prices and the prevailing high price volatility," the IGG draft report said.
The draft report also said unexpected price hikes and volatility were an important threat to food security and that their root causes should be tackled.
The IGG groups also proposed enhancing market information and transparency and intensifying FAO's information gathering methods and looking at ways to manage the risks of market volatility.
Earlier on Friday, in its latest report on food security and crop prospects, the FAO raised the forecast by just under 1 million tonnes from its previous estimate on September 1.
The new forecast would be the third-largest crop on record and just 1 percent below last year's level, despite a sharp reduction in wheat and barley production in drought-affected Russia and other former Soviet states, FAO said.
"At the current forecast level, the 2010 cereal production, coupled with large carry-over stocks, should be adequate to cover the projected world cereal utilisation in 2010-2011," the FAO report said.
CEREAL PROJECTION STABLE
The projection for cereal utilisation was broadly stable at 2.248 billion tonnes, with the expected 9 million tonne production shortfall met by large inventory levels, FAO said.
World wheat production is now forecast at 650 million tonnes, up 4 million tonnes since September 1 thanks to an improved outlook in Australia.
Projected coarse grains output, on the other hand, was revised down by 3 million tonnes to 1.122 billion tonnes, now slightly below last year's level due to a cut in projected output of maize in the United States.
FAO noted that international grains prices have surged since the start of July due to drought-reduced crops in exporting countries from the Commonwealth of Independent States and Russia's decision to ban exports.
Global paddy rice output is seen at 467 million tonnes, unchanged from September 1.
FAO noted that the outlook for rice production had worsened in the last few months, with several large producers suffering drought and floods, but output is still seen 3 percent up on last year and a new all-time record.
(Additional reporting by Gavin Jones)
