RAWALPINDI, April 11: The United Nations Food and Agriculture Organisation (FAO) said on Friday that food prices in Pakistan were increasing because wheat price in the country was lower than in neighbouring countries and wheat flour was being smuggled out.

At the same time, the organisation forecast a smaller wheat crop in Pakistan this year. It is estimated to be one million tons less than last year’s output, because of reduced area due to delayed sowing, less availability of irrigation water and higher fertiliser prices.

However, the output could still be 5.3 per cent more than the five-year average, said the “Crop Prospects and Food Situation” report of the FAO.

Overall in Asia, prospects for the 2008 wheat crop, already close to harvest, are favourable, although outputs are forecast below the record levels of last year.

The FAO Food Price Index continued to increase since the start of the year and by March it averaged 220, as much as 80 points (57 per cent) more than in March 2007. Prices of nearly all food commodities have risen since the beginning of the year supported by a persistent, tight supply and demand situation. In 2007, the index averaged 157, up 23 per cent from 2006, it said.

The FAO Cereal Index firmed since the start of 2008, averaging 283 in March, up 45 points from January. Tight supplies continue to provide support to the prices of most cereals.In recent weeks, rice prices gained most, but maize prices also made further gains. Wheat prices have come under some downward pressure during the first week of April in anticipation of larger crops in 2008. However, because of low stocks, wheat prices remain high and well above the previous year’s levels.

The FAO report said that world cereal production in 2008 was forecast to increase 2.6 per cent to a record 2 164 million tons. The bulk of the increase is expected to be in wheat following significant expansion in plantings in major producing countries. Coarse grain output is tentatively forecast to remain around the bumper level of last year. Rice production is foreseen to increase slightly reflecting production incentives in several Asian countries. However, much will depend on climatic conditions in the coming months.

Assuming that the current forecast of an increase in cereal production in 2008 will materialise, the global cereal supply situation in 2008-09 is likely to improve, paving the way for a gradual recovery from prevailing tight market conditions. With most of the anticipated production expansion to occur in several major cereal exporting countries, exportable supplies are expected to recover significantly from their sharply reduced levels this season.

In spite of the surge in world cereal prices in 2007-08, world cereal utilisation was expected to demonstrate a relatively strong growth and reach 2,126 million tons, an expansion of almost three per cent from the previous season, the FAO report said. Food consumption of cereals is forecast to reach 1,006 million tons, an increase of about one per cent from 2006-07.