J. D. Heyes
August 28, 2012
Grocery prices in the United States have risen steadily for months now, but because of the drought here at home and other global market forces, food costs are set to skyrocket around the world as well, say experts.
In addition to parched farmland throughout much of the U.S. and near the Black Sea, weak monsoons in India and ongoing hunger across wide swaths of Africa will all combine to drive food prices higher next year.
“We have had quite a few climate events this year that will lead to very poor harvests, notably in the United States with corn or in Russia with soja,” Philippe Pinta of the French Farmer’s Federation warned recently.
If conditions persist beyond this year, analysts note, it could be a repeat of 2007-2008, when food prices soared more than six percent to a 25-year high, according to industry analysts and reports at the time.
A year later, the UN said, prices had peaked to 30-year highs and in December 2010 the food price index rose above its 2008 peak before dropping to an 11-month low in October 2011.
Memphis, Tennessee-based Informa said a study based on 20 years’ worth of food price data blamed soaring non-farm costs such as “record oil prices and soaring consumer demand from the world economy, notably the emerging middle class in Asia,” were largely at fault, Reuters reported.
We’ve seen this before
Today, a similar combination of things, combined with a weather element, is once more affecting world food prices.
While oil has retreated in recent days, prices remain high despite lower demand, especially from the U.S., the world’s largest oil consumer. That has translated into higher costs for fuel that farmers must pay to harvest and transport their crops.
A drought continues to grip much of the Midwestern United States, where corn production has fallen to its lowest level in six years, according to the Department of Agriculture, where diminished corn and soybean production will likely contribute to higher costs.
In India, meanwhile, monsoon rains fell more than 15 percent below normal by mid-August, meaning Asian rice prices are likely to increase by as much as 10 percent in the coming months.
Drought conditions have also hit parts of Africa’s Sahel region, causing food shortages. In fact, the relief agency World Vision Australia said 18 million people need food assistance in Niger, Mali, Chad, Mauritania and Senegal.
If conditions don’t change, it “could affect the crop prospects and may have an impact on prices of essential commodities,” Kuruppasserry Varkey Thomas, India’s agriculture minister, told the Bangkok Times.
Already, the prices for some items are being affected by inflation.
“Cereal prices have shot up, with an increase in (corn) prices of almost 40 percent since June 1,” strategists at the CM-CIC brokerage noted. In the U.S., the price of hamburger and other meats, along with some dairy and corn-based products, have shot up.
Some cause for optimism; some wiggle room
Not everyone is being pessimistic about food price increases. Analysts with the UN Food and Agriculture Organization (FAO) say they are expecting rice outputs to surpass the “excellent results” seen in last year’s crops, even though the agency cut its estimates for production of un-milled rice to about 725 million tons from 732 million.
Still, it’s clear harvests this year around the world are going to be negatively impacted, and that has led some to call for measures aimed at boosting food supplies in any way possible.
One such way would be for the U.S. to suspend its corn-ethanol mandate, says FAO director general Jose Graziano da Silva of Brazil.
“An immediate, temporary suspension” of the mandate requiring a substantial portion of corn crops to be used in biofuels “would give some respite to the market and allow more of the (corn) crop to be channeled towards food and feed uses,” he wrote in the Financial Times.
The jury is still out on that suggestion. A Purdue University study published earlier this month found that suspending the mandate could have some positive effects on prices by boosting availability. The suggestion seems like a no-brainer, but remember, we are talking about Washington, D.C.
This article was posted: Tuesday, August 28, 2012 at 2:48 am