Tuesday, March 4, 2008

Rising World Food Prices

From BBC.com:
Rising World Food Prices

What is going on?

Prices are increasing sharply for some of the most basic foodstuffs traded on international commodity markets.

The price of wheat has doubled in less than a year, while other staples such as corn and soya are trading at well above their 1990s averages.

Rice and coffee prices are running at 10-year highs, and in some countries, prices for milk and meat have more than doubled.

Why are we seeing these increases now?

It could be the breakdown of the "Goldilocks era" for global commodities - a period stretching back more than 30 years, during which the price of basic foodstuffs has been neither too high nor too low, but remained relatively constant.

For most of this period, the cost of staples such as wheat, corn and soya has actually fallen in real terms.

But it seems this long period of stability is coming to an end. Most commentators believe we are on the cusp of a new era of volatility and rising prices.

What are the main causes?

The first reason why prices are rising is growth in the world's population, which is expected to top nine billion by the middle of the century.

That is an incredible number of mouths to feed and will put pressure on a range of resources, including land, water and oil, as well as food supply.

But lurking behind the headline figures for population is an even more significant factor pushing up prices, and that's the economic miracle driving emerging economies such China and India.

To put it bluntly, rich people eat more than poor people, and all this economic growth is generating a whole new tier of middle-class consumers.

What other factors are involved?

There is also the added environmental pressure all these extra people are loading onto the planet, as well as the impact of climate change.

Desertification is accelerating in China and sub-Saharan Africa, while more frequent flooding and changing patterns of rainfall are already beginning to have a significant impact on agricultural production.

And global warming has played a significant role in another driver of rising prices: the shift in agricultural production from food to biofuels.

Ethanol production is on course to account for some 30% of the US corn crop by 2010, dramatically curtailing the amount of land available for food crops and pushing up the price of corn flour on international commodity markets.