World Food Situation: FAO Food Price Index Hits Record High
The FAO Food Price Index (FFPI) rose for the seventh consecutive month, averaging 231 points in January 2011, up 3.4 percent from December 2010 and the highest (in both real and nominal terms) since the index has been backtracked in 1990. Prices of all the commodity groups monitored registered strong gains in January compared to December, except for meat, which remained unchanged.
The rise of food prices, which coincides with petroleum price rises, signals the onset of a serious global economic problem. Namely, how can all the poor people in the world afford to eat?
Here in the US, our food prices are dominated by packaging and other retail costs. In many parts of the world that is not the case, as food sales are much, much simpler.
And, food price inflation expected to get worse:
The US Department of Agriculture (USDA) forecast on Thursday that food prices will continue to surge. The world’s biggest food exporter is expected to see an 18% rise in exports this year.
US food prices will rise between 3% and 4% this year, the USDA forecasts, after rising in 2010 by the slowest rate since 1962.
The US is the world’s biggest food exporter and the global recovery is pushing up the cost of food at a time when the rise in the oil price is boosting the US biofuel industry’s purchasing of corn to make ethanol.
Prices of corn, wheat and soybeans are up 88%, 76% and 37%, respectively, from 12 months ago.
The USDA’s chief analyst released this report (PDF) last week: Prospects for the US Farm Economy in 2011 which is rather bullish on US agriculture prospects for the year ahead, but concludes with:
At the Agricultural Outlook Forum in 2008 there was much consternation about high commodity prices, increasing energy costs, food price inflation, and the strength of domestic and foreign demand. Three years later, markets are again very tight, particularly for feed grains and oilseeds. While it is often said that the cure for high prices is high prices, even with additional supplies expected this year, it is likely that the tight stocks to use situation will not be entirely mitigated over the course of one or even two growing seasons. This will mean continued high costs for feed which will keep margins for livestock producers at low levels.
In the short run, much uncertainty remains and with tight markets, price volatility is expected for most markets. In part, the outlook for 2011 will depend on the progress in global economic growth. […]
Looking over the longer term, the past 6o years have been characterized by increased agricultural productivity and declining real prices for most agricultural commodities. Whether the current period marks a turning point will depend largely on whether over the long run productivity gains will continue to offset the growth in demand caused by rising population and income.
So, it is expected that the American trade balance will benefit from these higher prices, but as Glauber points out even two growing seasons will not be long enough to find enough additional production to satiate the global demand for foodstuff.
All of this leads to the uncomfortable idea that around the world many people will be in an intense race to find food and governments will find increased demands for food subsidies.
And, this is without bringing in concerns about spiking petroleum prices. Should we see petroleum rise sharply (due to either political unrest or hurricanes or simply rising demand outstripping supply) then the economic pressure on poor and working people around the world will increase greatly.