World food prices stabilized in August at levels close to those reached in the food crisis of 2008, and global grain stocks are likely to shrink this year as cereal crop output falls short of what is needed, the United Nations food agency said on Thursday.

FAO Director-General Jose Graziano da Silva called for international action to calm markets but also said the August price index, which remained unchanged from July, provided some cause for optimism.

Earlier on Thursday, Russian Deputy Agriculture Minister Ilya Shestakov said G20 countries would hold a meeting on the grain market next month.

The worst US drought in more than half a century and poor crops from the Black Sea bread basket have sent grain prices to record peaks, raising alarm over a potential repeat of the crisis in 2008 that sparked riots around the world.

The FAO Food Price Index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 213 points in August, unchanged from July, when prices surged 6 percent after three months of falls.

Prices of cereals, oils and fats were little changed in August, while sugar prices fell sharply, compensating for rising meat and dairy prices, FAO said.

Change reassuring

"This is reassuring," said Graziano da Silva. "Although we should remain vigilant, current prices do not justify talk of a world food crisis."

Whether prices will rise in the rest of the year is unclear, FAO official David Hallam told reporters.

The agency's Cereal Price Index averaged the same as in July, with some increases in wheat and rice offsetting a slight weakening in maize, the agency said.

"Deteriorating crop prospects for maize in the United States and wheat in the Russian Federation initially underpinned export quotations, but prices eased toward the end of the month following heavy rains in areas hardest hit by drought in the United States," FAO said. Also helping to stabilize prices was Russia's announcement that it would not impose export restrictions, the UN agency said.

Wheat output in Russia, Kazakhstan and Ukraine was forecast to decline, but wheat production in the United States was forecast to increase to above-average levels, and record harvests are expected in India and China, the FAO said.

The agency's report said that sugar prices dropped sharply in August, in part due to better weather conditions in Brazil, the world's largest sugar exporter.

The index is below a peak of 238 points hit in February 2011, when high food prices helped drive the unrest in the Middle East and North Africa, but it is still close to levels during the food price crisis in 2008. Hallam said there were still upside risks for food prices, such as the potential for speculative capital to return to markets. A lot would also depend on how plantings develop, he said.

"The market is very vulnerable to any supply side shocks ... there is a risk of more price increases but at the moment there is no evidence to suggest that is an inevitability," he said.

The FAO said this week that swift international action could still prevent a catastrophe from developing. It has urged countries to review their bio-fuel mandates and also warned against panic buying and restrictions on exports.

Reuters-AP