Early indications hint at smaller 2009 cereal crop

Early indications point to a reduction in global cereal output in 2009 from the 2008 record, according to FAO’s latest Crop Prospects and Food Situation report. Smaller plantings
and adverse weather look likely to bring grain production down in most of the world’s major producers.

While conditions are generally favourable for winter wheat throughout Europe and the United States, planted area in these countries has declined, reflecting the prospect of sharply
reduced returns compared to last year, combined with persisting high input costs, the report said.

In low-income food-deficit countries, prospects for early 2009 cereal crops point to lower output. The early outlook is for a smaller maize crop in southern Africa. Prolonged dry weather
is adversely affecting wheat prospects in Asia, with almost half of China’s winter wheat area suffering from severe drought and precipitation also inadequate in India. Overall, however,
much will depend on the rice crop yet to be planted in Asia.

In South America, 2008 wheat production was halved by drought in Argentina, and persistent dry weather is adversely affecting prospects for the region’s 2009 coarse grains.

Stocks up…

Based on the latest estimates of cereal production in 2008 and projected utilization in 2008/09, FAO forecasts world cereal carryovers at 496 million tonnes going into the new 2009/10
seasons, the highest level since 2002.

FAO reports an easing of the cereal supply and demand situation in the low-income food-deficit countries as a group, following above-average harvests in 2008.

…but prices still high in most countries

Despite the decline in international prices in the second half of 2008, domestic food prices remain very high in several developing countries, affecting access to food among low-income
population groups. In Southern Africa and Central America, prices of main food commodities have continued to rise or have not decreased in recent months.

In Western and Eastern African countries, prices have fallen significantly since the beginning of the harvests in September-October, but by January they were well above their levels of a
year ago. The situation is worse for imported rice and wheat, important staples in these sub-regions, as prices are still on the increase. Prices of rice and wheat also remain high in
several poor countries in Asia, including Afghanistan, Pakistan and Sri Lanka.

Countries in crisis

Food crises persist in 32 countries around the world. In addition, the food situation is of particular concern in the Gaza Strip as a result of the recent conflict, FAO
said.

In Eastern Africa, more than 18 million people face serious food insecurity due either to conflict, unrest, adverse weather or a combined effect, while in Southern Africa the total number
of food insecure is estimated at some 8.7 million. In Kenya, Somalia and Zimbabwe, the food security situation is very serious following
drought-reduced crops, civil insecurity and/or economic crises.

Click here for the complete list of countries requiring external
assistance.

Biofuels

FAO’s latest forecast for the 2008/09 (July/June) marketing year points to further increases in the use of cereals for biofuels production – a total of 104 million tonnes, up 22 percent
from the 2007/08 estimated level, representing 4.6 percent of world cereal production.

In the United States, total use is forecast to increase to roughly 93 million tonnes (91 million tonnes maize), up 19 percent from the 2007/08 level. Earlier forecasts expected an even
faster growth in maize utilization for biofuels, but the steep decline in oil prices and the economic slowdown have lowered those expectations in recent months.