Food Price Escalation
There is a lot of noise in the media at the moment about food prices going up and the prospect of food driven rioting and unrest in many parts of the world. Consequently it would seem to be a good time to examine the picture and look at the factors which drive the prices. The FAO food price index shows a very significant rise in the overall price of food since early 2007 and a peak around the summer of 2008 and a second even higher peak in early 2011.
The factors that drive these prices are complex but eventually come down to the supply and demand equation. If the supply exceeds the demand prices come down – if the reverse is true then prices go up. In Russia 2010 the wheat harvest was devastated by numerous fires caused by drought and Russia banned any exports of wheat and began buying up world stock – the price went up. Currently, May 2011, there is growing unease about the effect of poor winter weather on US and Chinese food crops.
There is also pressure on food supplies because 100 million Tonnes of grain is being consumed by the BioFuel Industry to create fuel for automotive use because mineral oil prices are high. We live in a connected world and the effect of one shortage can often impact many other areas.
For example – if you look at the price of sunflower oil 2 years ago it was retailing for 58p/litre today it is closer to £1.30/litre – why because sunflowers are in high demand both by food manufacturing but also by the BioFuel industry.
Not all food prices have gone up in every area but the staple diets of many of the poorest people in the world have often been hugely affected.
Is Food Price Escalation Inevitable?
If you listen to the media you might believe that the speculators who trade food based commodities are to blame for the huge rise in prices. The truth is that the main factors are reduced supply because of weather, local effects like fire and floods and growing demand from China, India and the rest of the world. The commodity speculators are not the major driving force but they have amplified the problem to some degree.
Sugar is a good example – demand simply exceeds supply and the inevitable consequence is higher prices. Prices were dependant upon supply – good harvest=lower price. Failed harvest=Higher price.
Coffee makes an interesting case study. In the 1980s and 90s coffee prices fluctuated due to good and then poor harvests. Today, because of commodity trading, the price increase is due bets being placed on the longer term price of coffee.
Food Price Escalation and Oil prices
There is little doubt that the long-term price of mineral oil will continue to rise – it is inevitable. That too will continue to put an upward pressure on food prices and in the developed world is a very significant driving force in the long term – food price escalation is unavoidable and it hits the poorest first.
Food, Oil and the environment are inextricably linked and in some ways uncomfortable bed fellows. The UK inflation figures published 17 May show the CPI increased to 4.5% and most of the rise was put down to the increase in transport fuel prices. That then feeds into the RPI through food prices on the high street. The global picture is even starker and many African/Asian communities are noticing a rise in fuel and food costs. Floods in Australia not only pushed up prices by 30% in the following months but also began to exert upward pressure on food markets in Asia – food price escalation is a complex picture and one that refuses to go away.
Forbes are predicting a steady rise of 3% year on year – whoever suggests that food price escalation is a myth needs to re examine the facts.
We have to find solutions to the problems – the consequences of just letting things run out of control are simply too uncomfortable to bear. So we’d like to know what you are prepared to do/or are doing:
Food price escalation is a threat to society an nations, we have to face the problem and do something about it?