Welcome back to 2008.
The above chart is real; it´s from the UN´s Food and Agriculture Organization and it tracks food commodity prices. Food commodities are the raw materials of the food chain like corn, wheat, soybeans, meat, etc. before all the "value added" by food processing.
The big peak is in the middle of the chart is 2008 ...and the big peak on the right is today.
You might remember 2008 ...there were 60 food riots worldwide and some long-time governments fell as a result. The worldwide financial crisis then caused commodity prices to fall and that gave hungry humans about a 3 year break on their food bills.
Well, welcome back to high prices for food and other commodities ...and if you are hungry human in the developing world, you can be forgiven for praying for another meltdown among the world´s richest countries. But that´s not as likely now as it was in 2008.
This time around, food prices are affecting more than just the developing world. Wealthy countries are showing sluggish growth in their economies and many are struggling with high unemployment and lower wages. Food´s a funny thing, though: it´s the last thing that people cut back on. Food prices are way up in the US, for example, at a time of poverty rising to record levels. US consumers have cut back so much on gasoline that supplies are up and prices are down ...but even if they cut back on food, it won´t help supply or prices.
Supply and Demand
Although farmers and ranchers are producing all that they can, population is rising and the developing world is demanding the high protein din-dins that come from diverting grains to animals for meat and dairy. It´s a push-me, pull-you situation. If one nation eats more, another eats less ...and prices go up for both.
The 21st century is also seeing more and more cropland change to corn and soy.
Rice
Rice is a big loser in this new equation. The demand for corn and soy to make not only food but bio-fuels is causing farmers in the rice-exporting countries to switch to those two high-profit crops. Rice-eating countries export virtually nothing of their production. They rely on non-rice-eating countries to fill their annual shortages. Sadly, cropland in those rice-exporting countries is moving to other crops ...especially in the US, the world´s 3rd biggest exporter of rice.
Meat
The great meat-eating nations are feeling the pinch. High prices for corn and soy have diverted pastureland to those crops ...and are bedeviling the feedlot and dairy confinement operations with big bills for animal feed. Prices for beef, pork, and chicken are up everywhere.
Reserves
Another factor contributing to high prices, and wide swings in prices, is low reserves. As recently as the early 1990´s, large amounts of excess food commodities were stored, held in reserve, in case of shortage and as a hedge against swings in prices. Those reserves have been hovering at all-time lows for years. There´s not much cushion left in world food supplies.
China has committed itself to a national pork reserve and Brazil is doing it´s damndest to supply it. The environmental cost of which we might not know for years.
Climate Change
The weather experienced in this new century has wreaked havoc with farmers and ranchers used to more predictable patterns. The world´s biggest exporter of corn, the US, was tortured with hot weather this year and will have very little corn to store. The world´s second largest exporter of corn, Argentina, is struggling with government restrictions on exports that have caused dizzying disparities in price between Rosario and Chicago.
Export Restrictions
Argentina is not the only country to restrict exports on food commodities. In 2008, governments in 28 other countries restricted food exports to protect their populations ...and their elected positions. When countries restrict their exports in a panic over local supply, the amount of that particular food on the open market become scarce ...and price begin to swing wildly and panic buying sets in.
That brings us to most controversial aspect of big food prices: speculation.
Speculators
The traditional school of thought says that speculators in agricultural futures do not and cannot affect the end price of those commodities ...unless they actually take physical delivery of those tons of grains and meats. Another school of thought holds that, in markets that are normally boring and sleepy like rice and most agricultural commodities, speculators can cause panic that results in big hikes for the people that actually eat those commodities and depend on them to live.
The slowing of growth among the richest economies, according to that second school of thought, has lured speculators away from more traditional commodities (copper, coal, steel) into the agricultural sector which has heated-up and looks to stay hot. Since food prices look to stay high, if not become unaffordable for millions, traditional economists might have to re-write their textbooks as regards speculators.
You will be reading more on world food prices in the near future (if I´d have written this post last week, as I intended, I would have scooped several big publications) ...and you will be paying more for everything that you eat no matter where you live.
Keep an eye on yanquimike.com.ar ...food will be a major focus here for the foreseeable future.
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