April 14, 2011 / 7:23 PM / 8 years ago

UPDATE 1-UN food program hit by higher commodity prices

* Higher wheat, rice and corn costs adding pressure

* High fuel costs amplifying price increases

* Food cost rise pushing millions of people into poverty

By Lisa Baertlein

LOS ANGELES, April 14 (Reuters) - The United Nations’ World Food Program (WFP) is grappling with higher food costs at the same time the United States, its largest donor, could cut funding in a bid to reduce its budget deficit.

Rising commodity prices are driving up expenses at the largest global anti-hunger agency, which buys about 3.5 million tons (3.2 metric tons) of food annually, and collaborates with scores of other groups on emergency feeding programs and hunger prevention.

WFP’s most-purchased commodities are wheat, rice and corn.

The World Bank’s food price index, which measures global prices, has jumped 36 percent from a year ago and remains near its 2008 peak. Also, a 10 percent increase in oil prices pushed up the bank’s food price index, which measures global prices, by 2.7 percent.

Corn and wheat prices are up 74 percent and 69 percent, respectively, from a year ago, while rice prices have been stable, the World Bank reported on Thursday.

Every 10 percent increase in food prices equals an extra $215 million in additional costs for WFP, according to the World Food Program USA, a nonprofit group that supports the agency as well as global anti-hunger efforts by fundraising in the United States.

“Higher food prices increase pressure on people living on the margins,” said Rick Leach, chief executive of the World Food Program USA.

“While it might not be the primary cause, it definitely is an underlying cause for some of the instability you’re seeing in North Africa and the Middle East right now,” said Leach, who added that the extreme poor can spend up to 80 percent of their income on food.

By comparison, the typical U.S. food bill accounts for less than 20 percent of income. For details, see [ID:nN15285591]

“We’re now moving into a period of extreme worry in terms of the implications of food price increases,” said Leach.

He said high food prices have contributed to political instability throughout history, citing the French Revolution and the toppling of the Haitian government in 2008.

Rising fuel prices, partly due to upheavals in the Middle East and North Africa, have amplified the spike in food costs.

About 44 million people have fallen below the poverty line since last June, according to the World Bank, which estimates that roughly 1.2 billion people live in extreme poverty around the world.

The World Bank said a further 10 percent increase in global food prices could drive another 10 million people into extreme poverty — which is calculated at US$1.25 per day.

As food expenses rise, WFP also is working to preserve financial support from the United States, which provides about 40 percent of its funding and played a pivotal role in its creation.

Lawmakers recently abandoned a Congressional plan that would have sharply cut WFP funding this fiscal year.

Still, Leach said risks remained because U.S. elected officials are trying to reduce record budget deficits and slash the mounting national debt.

Failure to curb rising debt could lead investors to demand a higher return on future lending to the United States, forcing up interest rates and hurting economic growth.

“We’re not out of the woods,” said Leach, who added that every group that gets federal money must demonstrate results.

“I am 100 percent confident in what we do with these programs, what they support and the problems they prevent,” he said. (Reporting by Lisa Baertlein; editing by Jeffrey Benkoe)

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