FOOD PRICES - THE ROLE OF ECONOMIC & NON-ECONOMIC FACTORS
July 18 - 24, 2011
The FAO report "Food Outlook" sounds a warning note in the -his turbulent year and with new marketing seasons for major food crops coming soon, this is a critical time to evaluate current developments in global food markets and to draw the early outlook for 2011/12. In a remarkable turn of events earlier prospects of more comfortable supply situations and stable prices gave way to increasingly worrisome outlooks and to an escalation of international prices to levels not seen in decades. In fact the FAO food price index in May stood at a near historical high of 232 points, down only 6 points from the February record...Given the sharp run down on inventories and only modest overall global production increases for the majority of crops, world prices are likely to remain high and volatile."
WORLD FOOD PRICE INDICES
YEAR FOOD PRICE INDEX MEAT DAIRY CEREALS OIL AND FATS SUGAR 2000 90 96 95 85 68 116 2001 93 96 107 86 68 123 2002 90 90 82 95 87 98 2003 98 97 95 98 101 101 2004 112 114 123 107 112 102 2005 117 120 135 103 104 103 2006 127 119 128 121 112 210 2007 159 125 212 167 169 143 2008 200 153 220 238 225 182 2009 157 133 142 174 150 257 2010 185 152 200 183 193 302 May 170 152 209 155 170 216 Dec 223 166 208 238 263 398 2011 Jan 231 167 221 245 278 420 Feb 238 171 230 259 279 418 Mar 232 175 234 251 260 372 Apr 235 181 229 265 259 346 May 232 183 231 262 259 311 (Source: Food and Agricultural Organization - FAO)
The erratic pattern of food prices drives strength from a number of economic and non-economic factors. Economic factors include an expansionary free market economic model that keeps on creating fake wealth in the shape of paper money, interest based credit money generated by the banking system that adds to the cost of production on a continued basis thereby pushing the prices northwards, depleting natural resource position resulting in higher energy costs and therefore higher cost of production, and of course ever-growing world population. The astronomical rise in the prices of basic food items and economically important metals without any quality improvement or value addition after the abolition of gold system gives an inkling of where we would be after another 50 years. The increase in the prices of gold could be attributed to resource scarcity as world gold deposits cannot be replenished unless new finds are made. But procurement of a continued and enhanced supply of basic food items relates to land and animal fertility which can always be, and is being, improved through technological advancement. So what is the logic behind the price increase of such items? This is the satanic power of our economic model that has not only hugely devalued our money but has also eroded our human values.
Non-economic factors include unexpected supply shocks due to unforeseen circumstance such as floods, earthquakes etc, administrative policy deficit resulting in smuggling, hoarding and black marketing of food items, wasteful consumption habits and backward production methods resulting in huge food losses, imperfect marketing, distribution and financial systems, political malfunctioning, and the last but not the least, the developed nations' agenda to use food insecurity as a weapon of mass destruction. Industrialized countries' wasteful consumption habits and developing economies' substandard production methods, according to another FAO report, dissipate one third of total world food production. The document 'Global Food Losses and Food Waste' makes some shocking revelations according to which the industrialized and developing economies waste almost equal quantities of food every year - 670 and 630 million tons respectively. The rich nations waste as much quantity of food as produced by the entire pool of sub-Saharan countries - approximately 225 million tons. Not only rich nations, but the elite segments of developing economies too consign to the trash bin a sizeable chunk of their food production. The below-the-poverty-line segments of developing and struggling economies look for their meals in these trash bins. This is a highly disturbing trend and needs to be checked to avert a serious world food crisis that may be just around the corner. Food losses in developing economies taking place at production level are attributed to poor infrastructure, low level of technological advancement and inadequate investment in marketing and distribution systems.
Another important non-economic factor contributing to higher food prices is the deployment of excess investment funds in food commodities, especially by the hedge funds and sovereign funds. The food commodity future trading plays havoc with the food prices pushing them so high as to keep them out of reach of the poor. This significantly adds to the poverty incidence and undernourishment indices. Future trading in food commodities needs to be outlawed. Rich nations and world financial institutions are often seen showing concern for world poverty and hunger issues. They often come up with some aid programs to alleviate the sufferings of the poor. But, somewhere in their policy design, they appear to create niches to keep the issue alive and use it to divide the world into well-defined zones like the third world, LIFDC (Low-Income Food-Deficit Countries) etc. This is an explosive issue and needs to be addressed to avoid a "food holocaust".