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Food inflation is set to continue for some time as populations shift to industrial areas and emerging economies grow, Charles Funnell, a soft commodities trader with Swiss-based fund manager Aisling Analytics, said.
Speaking on the sidelines of the Kingsman Dubai sugar conference, Funnell said in an interview with Reuters Insider television that sugar importers were struggling to make margins due to high price volatility, and that in his view regulators may move to set “reasonability limits” to calm price swings.
ICE March sugar hit a contract high of 36.08 cents a lb on February 2, the highest price level in three decades. Food price inflation has surged up the political agenda globally after sharp rises in prices of grains and soft commodities, including sugar, coffee and cocoa.
Recent swings in futures markets such as sugar, driven in part by computer-generated trading, have complicated pricing even further. “The bad news for the consumer is that it (food inflation) is probably going to continue, and the reason is that there are more people, and people are moving from agricultural areas to industrial areas, and they’re consuming more," Funnell said.
He said that as economies in countries such as China and India grow, and disposable incomes rose, food inflation would take root.
“Inflation is part and parcel of the future and the challenge really for the world (soft commodity) market is extreme volatility and price spikes, which will mean that the market needs to incentivise producers to make more.”
Funnell said it takes time to produce food, with the growth period for sugar production, for example, lasting 12-18 months, and yet people want price stability. “We’re going to have an inflationary environment for food price until producers catch up,” he said.
Funnell said regulators, faced with anger from food importers struggling to manage risks, could introduce measures to calm price volatility.
"New regulations could be brought into place, for example in the sugar market specifically, to produce reasonability limits to prevent some of these enormous price swings,” he said. “The importance of putting these regulatory changes in place is paramount to ensure the proper liquidity and volatility in the sugar market.”
Funnell said that big swings in futures markets, with sugar futures sometimes moving $100 a tonne in a day, made it much harder for food importers to guarantee margins.
"The challenge is for importers to make that margin and not be badly priced in a market that is this volatile. The volatility is what causes them their main concern.”
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