Rising Food Prices a Global Problem
Protests leading to the ouster of dictators in Egypt and
Tunisia have been hailed as democracy breaking out in the Middle East, but
the reality may have less to do with the masses yearning for freedom and more
to do with people simply looking for a way to put bread on the table.
A World
Bank report warns that rapid inflation in food prices is driving up the numbers
of impoverished men, women and children around the globe.
Food prices, according
to the bank, rose 15 percent between October 2010 and January. On a year-over-year
basis, prices were up 29 percent for the period. Current food prices are only
three percent below the highest point on the index reached in 2008. Wheat prices
doubled between June and January, while maize was up 73 percent. Sugar and
edible oils have all seen major spikes, while rice has risen more slowly.
The World
Bank estimates that 44 million people have fallen into poverty since June.
Impoverished consumers spend more than half of their income on food, according
to the bank. Those defined as living in "extreme poverty" exist
on less than $1.25 a day.
"Global food prices are rising to dangerous levels and threaten tens
of millions of poor people," Robert Zoellick, president of the World
Bank, said on a conference call. "If we don’t get a relief on the
weather side, then I foresee conditions getting worse, and mistaken policy
actions such as exports bans or other tax or price controls will exacerbate
the problems."
Closer to home, food prices are also rising but not nearly
at the rate seen in developing country markets. While gas prices rose 8.5 percent
in December, food was up only 0.1 percent, according to the Bureau of Labor
Statistics. Many believe, however, that while food prices are currently lagging
fuel, that gap will eventually close. Even so, higher gas and food prices have
always hurt the poorest in society disproportionately.
Developments in Washington,
D.C. may also adversely affect the poor’s access to food.
Congressional proposals
to cut supplemental nutrition programs such as the WIC (Women, Infants and
Children) by $758 million could ultimately force people off the program, although
the actual effect has yet to be determined. Food manufacturers and retailers
serving WIC consumers could also be adversely affected.
Discussion Questions
Discussion Questions: How will rising prices and supply issues in other parts of the world affect the food industry in the U.S.? Are you concerned that rising food prices will stall the economic recovery in the U.S.?
IF we could separate the economics of supply and demand from the politics of power, the issues with world hunger could be greatly diminished. But the raw economics will always be in play. The cost of increasing supply in countries with excess growing capacity (i.e. the U.S) exceed the ability of the impoverished in third world countries to pay. We can produce plenty of $5 a bushel corn (forgetting the crazy ethanol subsidy impact for a minute) but that doesn’t help a starving family living on $7 a week half a (transportation cost) world away.
IF everyone in the ‘food chain’ (pun intended) were truly interested in getting the world’s hungry fed, then there is probably already enough government aid and charitable dollars in play to make up that inherent difference. But unfortunately other motivations enter into the equation. Graft, maintenance of political power through forced poverty, misguided policy positions and more get in the way.
As I wind this rambling post to a close I guess what I’m really saying is “sometimes we human beings just can’t get out of our own way.”
The world’s available food supply, its increasing population and rising costs are not fulfilling the world’s food needs adequately and many people are impoverished. There are many factors creating this world situation. Add to that China’s projected drought, which will increasingly require that it to buy more of the world’s available food supplies in the near future to feed its over a billion people. And China now has the money to bid prices up on available food supplies. That will likely cause a tighter world food shortage.
When there isn’t enough food to adequately feed the world’s population, food prices rise everywhere. As prices rise, many consumers have to pull back or even go hungry. This will impact the U.S. food industry as the U.S. population is also increasing and basic and discretionary income is going down and the likelihood of higher taxes continually loom.
In the U.S. we can expect rising food prices in the future which will create additional challenges/hardships for both consumers and food retailers. And it is possible that the quality of life in the America could be affected.
On average, food at home accounts for around 8% of household spending in the US (13% including food away from home), compared to 30-40% in developing countries. Competition between suppliers and retailers will limit the extent to which soft commodity hikes are passed onto consumers; my guess is we could see max 3% at retail, net of extra promotions etc. Consumers can “dial out” some of this inflation by trading down to cheaper products and retail outlets, or cutting down on waste.
So we’re probably looking at 1.5% net inflation on 10% of household expenditure – i.e., a 0.15% reduction in total spending power. Not such a big deal, especially when compared to transport, which takes up 15%. And certainly insignificant when compared to the impact in developing countries with a less value-added and efficient food chain.
The chaotic card that will drive prices higher is likely to be government intervention.
Certainly, weather, crop rotation, proper use of land, and then the hands of manufacturers and retailers AND CONSUMERS should provide the effective role in the U.S. of keeping a balance play at the grocery store. Yes, I do believe in the markets performing.
Governments who overly protect (China cotton or U.S. sugar beets, or you name the country that prevents selected agricultural imports), hoards (India wheat), excessively taxes (as this is written, the Commodities Futures Trading Commission is attempting to double taxes here in the U.S. on commodity trades), artificially use agricultural products (U.S. corn for ethanol) will only aggravate matters for consumers around the globe.
For the moment, U.S. consumers should be OK. Developing countries will have challenges that will only get worse if government hands dig too deeply into this spike.
There is no doubt in my mind that a long period of starvation, terror and civil unrest looms in many parts of the world (including segments of the US) due to food prices and shortages. Nor is there any doubt in my mind that solutions would be achievable if, as Ben says, politics was removed from the mix. But as long as there are people surviving, there will be those who are fit enough to survive, often at the expense of the less fit. Just back in English countryside after two weeks in California and Las Vegas, I am feeling even more cynical than usual.
The sad part is that there is no shortage of food, there is a shortage of dollars in developing countries to buy said food. Food prices are often tied to the cost of oil and as China and India develop and their oil consumption goes up, so does the cost of producing and transporting food. If we needed another reason to decrease our dependence and consumption of oil, this is a very good one.
North American consumers with little or no disposable income will undoubtedly be affected which could very well cause hardship and social unrest in this part of the world too. This is a very troubling trend.
If supply issues are part of the cause of rising prices, then how about creating more supply? How about no longer paying farmers to let their fields lie fallow? How about not using corn for a bogus ethanol program but using it instead for food, as Ben Ball suggested?
Hitchhiking on Ben’s on-the-nose comments, if the revolts in the Middle East are about food as much as anything else, won’t the resulting political changes deliver improved food supplies eventually? It’s the legislation of nutrition, but provides a long-term solution.
Short-term, our country could win tremendous favor by delivering food directly to the end users. Bypass the intermediaries who steal it and parcel it out to the highest bidders. Additionally, there are reports of millions of cubic tons of stored, stolen-from-relief-agencies, black market food rotting in clandestine locations. If there is a fault in our country’s (government, Red Cross, etc.) relief efforts, it’s that we don’t ensure final delivery to the end user. As a friend said recently, “We’re great starters but poor finishers.” I think the Haitians would agree.
This is not a short term problem that we are facing. The cost of oil, ethanol from corn, and the rising standards of living in India and China are short factors. The longer term factors that need addressing are water availability, the rapid degradation of soil quality, the potassium tipping point and a world population out of control.
Most commentators are focusing on supply issues, some attempt to address demand issues by calling for changed eating habits but until the issue of a growing world population is meaningfully addressed, “planet earth” is in for a rocky ride ahead. More affluent countries may, in the main, avoid too much pain in the short term,but uncertainty creates opportunities for extremism that no-one will be able to avoid.
We need to think about introducing some really tough measures and soon.