Food Price Inflation: Is There A Food Crisis Coming?
A number of factors are coming together to push up the cost of basic food products on the world markets. In the United States agricultural land has been hit by the worst drought that the country has seen in 50 year. This has lead to the loss of almost one-sixth of the corn crop, causing a 27.7% jump in the price of corn since June. The US soya bean harvest has also been hit, although nowhere near as hard, with 47% of the crop described by the US Department of Agriculture as being in poor or very poor condition. The price of Soya beans has gone up by nearly 38% over the course of the last 6 months, and the US harvest is expected to be the worst in at least 5 years. An increased demand for alternative grains has also seen the price of wheat rising sharply.
Russian harvests have also been badly hit by droughts, and in India crop yields are being affected by a lower than usual level of monsoon rains, which were said to be more than 15% below average in mid-August. The Indian Food Minister Kuruppasserry Varkey Thomas has told parliament this month that the light monsoon rains “could affect the crop prospects and may have an impact on prices of essential commodities.” Asian rice prices are forecast to go up by as much as 10% in the next few months, as limited supplies feed through into higher prices. UK crops are also being affected by unusual weather patterns of the opposite kind – record breaking rainfalls, the highest levels of summer rain on record – have damaged many crops.
So far the prices consumers pay for food at the till has not been significantly affected, however many experts are warning that a food crisis may be just around the corner, as producers are forced to start passing on the higher prices to consumers. Philippe Pinta of the French farmers federation FNSEA, for example, has warned that the combination of events listed above “will create price pressures similar to what we saw in 2007-2008″. He is referring in this quote to a period of massive food inflation which saw many poorer families around the world struggling to afford basic foods, leading to protests, riots, and public unrest in many different countries.
Bill Tierney, the chief economist at AG Resource, says: “People are hoping that if we can last out until March 2013, when the soya bean crops in Brazil and Argentina are harvested, we will be fine. But this is not the case. In order for supply to last until then, we will have to see a 16 per cent decrease in soybean usage”
There is already evidence that inflationary pressures are feeding through into the food prices paid by some of the world’s poorest countries, where large swathes of the population are highly vulnerable to such things due to the fact that food cost comprise such a large percentage of household budgets, as this CNBC article suggests: Food Inflation Entrenched in Southern Africa.
There are, however, some reasons to be optimistic. This year’s Australian harvest, for examples, could ease pressure on global food prices. Reduced investor demand for commodities could also help to bring down the price of basic foods. Capital Economics commodity consultant Muktadir Ur Rahman says: “In the current economic climate, there will be weaker investor demand for commodities generally. It has been empirically proven that soft commodity prices, such as that of corn and wheat, are heavily correlated with that of oil.” The price of oil has dropped by 4,85 in the last 6 months, so if Rahman’s logic is correct there could be a significant downward pressure on grain prices just waiting to feed through.
Personally I worry that growing global population and the rising standards of living in developing countries could be playing into this. The food crisis of 2007-2008 was ended in part because of the global financial crisis. As the number of people in the world who need to be fed goes up, and as the percentage of those who can afford to buy meat and luxury foods which require more land to grow also goes up, pressure on the world’s agricultural land can only increase. Of course this is also made worse by other sectors, such as the bio-fuel industry, competing for resources with food production. FAO director general Jose Graziano da Silva of Brazil used an article in the Financial Times recently to call for the United States to suspend bio-fuel production programmes to ease the pressure on food resources.