| Global agricultural commodity prices, which are rising for the last two years, are expected to remain high in the near future, according to the Food and Agricultural Organisation (FAO).
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| FAO, along with the European Bank for Reconstruction and Development in a recent report on food inflation, has indicated that the rising prices are here to stay.
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| The report lists three reasons for the global surge in demand for agri commodities and the consequent price rise — the increased demand in key emerging markets (China and India) as a result of changing consumption patterns and increased disposable incomes, the reliance of the expanding biofuels market on commodities such as sugar, maize, oilseeds and palm oil and the greater role of speculative investors in agricultural commodity markets. None of these causes are likely to disappear in the short-run and instead may become more prominent.
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| D K Joshi, the principal economist at Crisil, said, “If these factors remain strong in the future, the gap between demand and supply will continue to rise and fuel inflation”.
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| The FAO’s world food price index rose by 23 per cent in 2007, whereas the increase in 2006 was only 9 per cent. Notably, the FAO food price index for December 2007 was nearly 40 per cent above the December 2006 level, while the increase in December 2006 was only 13 per cent.
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| The rise was large especially for dairy products, and more recently affected cereals and oilseeds.
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| As food is the most frequently purchased item in the consumer basket, and constitutes a large share of monthly household expenditure in many poor countries, rising prices are a major concern for families and have been known to create social tensions. |
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