Monday, June 20, 2011

Food Inflation Threatens Asia

Food inflation is a favorite topic here, having discussed several times, ever since the beginning of this blog a few years ago. The reaons we have alwasy discussed, food pattern changes in Asia (people eating "better" - although better and healthier are not necessarily the same thing), oil prices, the value of the U.S. dollar.

World Bank president Robert Zoellick noted last month that food inflation is “the biggest threat today to the world’s poor”.

Asia News: discusses the subject and reasons that although the current price spikes superficially resemble those of the 2007-09 food crisis, there are differences today, differences that agree with our reasons:.

"During the 2007-09 period, the main problem was the price of rice which at one point shot up by 50 per cent. This time, however, rice supplies are abundant. But prices of other basic food items such as cooking oil, meat and dairy products have registered large increases, while cereals are 44 per cent more expensive now than during early last year.

More importantly, while the previous grain shortage was prompted by ‘traditional’ causes such as droughts in key producing countries, the current spike is the result of far more intractable developments.

The first has little to do with agricultural cycles, but with the hike in the price of fuel. Rising oil prices lead to higher fertiliser costs, as well as bigger expenditures on running farming machinery, such as tractors and irrigation equipment. Oil prices also raise the cost of transporting food to markets.

And they also encourage the greater use of food products such as corn and sugar in the production of biofuels. In the US, up to a third of total corn output is used for biofuels, and this is expected to rise to 40 per cent this year. Unsurprisingly, corn supplies in northern and Latin America are at their lowest level in 30 years.

A second factor is changes in consumption.

Each year the world’s farmers must feed 80 million additional people, and nearly all of them are in developing countries. The farming industry has coped well with the doubling of the world’s population since the 1970s through more intensive and efficient production. But it is less able to cope with a new phenomenon: the movement of an estimated three billion people up the food chain.

As families in emerging economies join the ranks of the middle classes, their diet expands to items which only a generation ago were regarded as luxuries. The people of China, for instance, now consume 2.4 times more meat than a decade ago, and three times more milk, fruit and vegetables. Meanwhile, Indian customers have expanded their consumption of similar items by an average of 30 per cent".

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