WRAPUP 1 - South Korea joins global action to boost food supply

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Tuesday, 11 January 2011 07:58 GMT

* South Korea to boost food supply and set up trade firm

* Aussie floods set to push up vegetable and fruit prices

* India cautious over food exports, Japan monitoring

* Asia rice supply seen ample for now

By Kim Yeonhee and Lee Shin-kyung

SEOUL, Jan 11 (Reuters) - South Korea unveiled steps on Tuesday to combat the threat of rising food prices, joining a flurry of activity as policymakers grow increasingly worried that inflation could derail a global recovery.

Central bankers meeting under the auspices of the Bank for International Settlements warned on Monday that rising prices in fast-growing economies were an increasing menace and it was important to anchor inflation expectations. [ID:nLDE7091PO]

The G20 also weighed in late last week, promising action to find ways to bring down high food prices, which have already pushed food inflation in countries such as Brazil, China and India into double digits and forced farmers in Indonesia to guard their high-value chilli crops around the clock.

The United Nations food agency provided an uncomfortable reminder of the 2008 global food crisis, when riots erupted in several countries and others banned food exports, by reporting last week that world food prices had risen above 2008 levels.

In South Korea, where food makes up about 15 percent of the consumer price index (CPI), the government said it would increase the supply of vegetables, meats and fish ahead of Lunar New Year holidays that start at the end of January.

The government listed 16 agricultural and fish products for additional supplies after the country's President Lee Myung-bak declared a "war on prices" in the year's first cabinet meeting on Jan. 4.

"The measure is aimed at keeping prices stable, as demand is increasing for those products ahead of the New Year holiday, and is also aimed at taming expectations of price volatility," said Lee Yong-jae, a finance ministry director in charge of the measures. [ID:nTOE70A03G]

Korea also said it would set up a trading company for the longer term to import grains directly. The move is part of anti-inflation measures due to be announced on Thursday after consumer prices rose in the year through December more than expected, led by food and fuel prices. [ID:nTOE6BT076]

The grains trading company will be established in Chicago in the first half of this year to manage global food price volatility. The country imports 14 million tonnes of grain a year and the company will buy about 30 percent of the total in the future.

TAKING ACTION

Wheat prices rose 47 percent last year, corn more than 50 percent and U.S. Soybeans by 34 percent. The United Nations' Food and Agricultural Organization said in its report key grains prices could rise further.[ID:nLDE7041BM]

Reflecting rising concern over food prices, Indonesia said on Friday it would scrap import duty on wheat, soybeans and livestock feed. Its president urged Indonesians to plant their own food to help ease price pressures. [ID:nJKB004202]

Algeria's government suspended customs duties and tax on imports of sugar and cooking oil after riots over food. Bangladesh has launched a drive to distribute rice and wheat to the poor and Ethiopia has instigated price caps.

The 2008 food crisis was initially sparked by fear of wheat shortages in some countries.

This led some governments to impose export restrictions on rice, the key staple substitute, Credit Suisse said in a report last week that concluded further adverse weather shocks would be needed to drive food prices much higher this year.

However, several countries are seeing a sharp rise in food prices as global demand outstrips production. The concern is that if food inflation spreads to broader inflation in the economy, it could undermine the recovery from the global financial crisis.

India farm minister, Sharad Pawar, told reporters on Monday that the government was "cautious" about exporting food since the country's food inflation jumped late in December to more than 18 percent -- its highest in more than a year. [ID:nSGE70A00U]

In Australia, the worst floods in Queensland in 50 years could push up vegetable and fruit prices as much as 30 percent, which could weigh on retail spending. [ID:nL3E7CB02G]

"We are going to see far heavier impacts now in terms of availability and price rises on a lot of lines," said Jim Cooper, a spokesman for Coles, Australia's second-biggest supermarket chain owned by Wesfarmers .

Up to half of the country's wheat crop could be downgraded to low-grade grain, which will squeeze global supply of higher quality wheat. [ID:nL3E7C40CH]

ASIA RICE SUPPLY AMPLE

Japan's agriculture minister sounded less cautious about the rising cost of food. A 14 percent rise in the yen last year has helped the country offset rising commodity prices.

Michihiko Kano said at a regular briefing on Tuesday that Japan, the world's biggest net importer of food products, would monitor developments but no action was planned.

"As of now, we are not reviewing our national food reserves," he said.

Analysts said rice supplies in Asia were ample through the first quarter, which will keep prices in check. Indeed, Asian rice prices, based on benchmark Thai prices <RI-THWHB-P1>, fell last year as other grains shot higher. [ID:nL3E7CA0NY]

Vietnam, the world's second-biggest exporter after Thailand, said that it had revised up its estimate of stocks of the grain by 40 percent. The stockpile will be enough to meet its early 2011 loading commitments. [ID:nHAN531411]

Last week, Thailand said it would maintain its rice exports this year at similar levels to last year and the Philippines, the world's biggest importer, has said it plans to cut its 2011 purchases by half. [ID:nSGE706025]

However, Angelito Banayo, the administrator of the state grains agency, the National Food Authority, said on Monday the Philippines wanted to start importing rice in the first quarter despite ample stock levels.

"Realistically, we could wait until probably the second quarter because of our huge inventory. But there is no certainty that prices will go down in the second quarter," he said. (Writing by Neil Fullick; Editing by Alex Richardson)

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