Friday, March 4, 2011

Global Food Prices Continued to Rise In February

(This post originally appeared on Red Green and Blue on 3/4/11.  For links to all my blog posts on various sites, click here)
Each month the Food and Agriculture Organization of the UN (FAO) releases an update on the global prices for food in trade channels. The chart above is based on this data and it shows that we are continuing into a price spike much like the one in 2008.  This does not tell you what food prices are doing in any particular country because that depends on how much domestic food production each country has and whether they stockpile grains etc.  For big food exporters like the US, Canada, Australia... food will only get marginally more expensive.  In net importing regions like the EU, prices for things like bread, pasta and meat/milk will get noticeably more expensive, but most Europeans will have no trouble affording them.  The biggest impact will be on countries that are highly dependent on imported food with very limited domestic production.  That is the case for many countries in Northern Africa and the Middle East and some places in Asia.

What Is Driving This?

What is extraordinary about this trend is that for more than two decades before 2008, there were no spikes of this magnitude.  To be entering a second such spike within three years suggests that something has fundamentally changed in the global food situation.  It may well be that the current trend is simply a resumption of the 2008 phenomenon which was merely interrupted by the global recession.  It is important to avoid oversimplification or alarmism here, but the most likely factors behind this phenomenon include:
  • Rising overall population levels (likely to continue until ~2050-60)
  • Rising standard of living in places like India and China
  • Increased energy costs
  • Increased biofuel demand
  • Crop losses associated with weather extremes that are increasing because of Climate Change
Farmers will respond to the higher prices for their crops and will likely produce enough to dampen these trends, but they can only do so to the extent that the weather allows.  This should be an interesting year.  I plan to continue posting updates each month as the new FAO estimates are released.

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