Is it FOOD or GAS?

Food Shortage

Washington, Aug 6 (Reuters) -

Drought in the U.S. farm belt may result in higher prices for poor people around the world, according to the head of an agricultural think tank who on Monday also recommended a halt to ethanol production from corn.

Shenggen Fan, director general of the International Food Policy Research Institute, said the global spike in food prices in 2008 showed how poor crops and tight supplies have wide impact. IFPRI is the analytical arm of a coalition of agricultural research facilities.

Fan suggested six steps to rein in prices and head off out-of-control prices caused by this year's drought.

More than 60 percent of the continental United States, including prime grain territory, is under moderate to exceptional drought. The Agriculture Department was scheduled to make its first estimate of the fall harvest on Friday. Some private analysts say the corn crop could be the smallest in a decade.

"Food crop demand for biofuels, particularly in the United States and European Union must be cut substantially, as should mandates for ethanol content in fuel, to help relieve the pressures on both domestic and global food markets," Fan said in a release.

Ethanol production accounts for about 40 percent of the U.S. corn crop.

He also urged nations to avoid export bans, to be ready to use their stockpiles to address food emergencies, and continued aid to expand food production in developing countries.

The United States is often the world's largest exporter of corn, wheat and soybeans, so this year's drought would be felt among its overseas customers as well as at home, where food prices are forecast to rise. For example, Mexico and Egypt are among the four largest buyers of U.S. corn, said Fan.

"Poor and vulnerable groups in developing countries are hard hit by high and volatile prices of the agricultural commodities they depend on for their primary daily caloric intake," Fan said. "As experienced during the 2007-08 global food price crisis, price movements in domestic markets can have significant impacts on global markets, and vice-versa."

World food prices fell for the past three months and are 15.4 percent below the record set in February 2011 on a price index calculated by the U.N. Food and Agriculture Organization. The FAO was scheduled to update the index on Thursday. FAO said deteriorating U.S. crop prospects bolstered grain prices in late June. (Reporting by Charles Abbott; Editing by Eric Walsh)