The world could face a food

crisis of
the kind seen in 2007 to 2008 if countries restrict exports on concerns about a
drought-fuelled grain price rally, the UN’s food agency has warned.

The warning came after reporting a surge in global food
prices in July.

A mix of high oil prices, growing use of bio-fuels, bad
weather, soaring grain futures markets and restrictive export policies pushed
up prices of food in 2007 to 2008, sparking violent protests in countries
including Egypt, Cameroon and Haiti.

Concern about extreme hot and dry weather in the U.S.
Midwest sent corn and soybean prices to record highs last month, driving
overall food prices higher again and reversing the Food and Agriculture
Organisation’s forecast for declines this year.

“There is potential for a situation to develop like we had
back in 2007 to 2008,”the FAO’s senior economist and grain analyst Abdolreza
Abbassian told Reuters.

“There is an expectation that this time around we will not
pursue bad policies and intervene in the market by restrictions, and if that
doesn’t happen we will not see such a serious situation as in 2007 to 2008. But
if those policies get repeated, anything is possible.”

A number of major producers imposed various restrictions on
exports in an attempt to control domestic prices in the 2007 to 2008 crisis,
including outright bans as well as quotas or higher tariffs on exports of foods
including rice, corn and wheat.

The restrictions reduced supply on international markets,
helping to drive prices even higher.

Grain markets have been boosted recently by speculation that
Black Sea grain producers, particularly Russia, might impose export
restrictions after a drought there hit crops.

Markets drew a little comfort from official Russian comments
on Wednesday that the country saw no grounds to ban grain exports this year but
did not rule out protective export tariffs after the end of the 2012 calendar
year.

The FAO Food Price Index, which measures monthly price
changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged
213 points in July, up Six per cent from 201 points in June, the FAO said in
its monthly index update.

The rise, which followed three months of declines, was
driven mainly by a surge in grain and sugar prices, while meat and dairy prices
were little changed, the FAO said.

It said the U.S. drought, which is the worst to hit the
Midwest in 56 years, had pushed up corn prices by almost 23 per cent in July,
and international wheat prices had followed, rising about 19 per cent amid
worsening output prospects.

Although below a peak of 238 points in February 2011, when
high food prices helped drive the Arab Spring uprisings in the Middle East and
North Africa, the index is still higher now than during the food price crisis
in 2007 to 2008.