Cheap no moreThe article then goes on to outline the two primary reasons. China and India are becoming prosperous and more people are buying meat instead of grains. It takes 2.6 pounds of corn to produce one pound standing weight of beef. This includes all the offal, bones so once the beef is butchered, it's more like four to one. The article said that the Chinese used to eat 20KG/year and they now eat more than 50KG/year. The second reason is obviously the government's idiotic subsidies of Ethanol as a fuel. The sooner that they get out of that business, the better. A good and well-written article... Posted by DaveH at December 12, 2007 9:36 PM
Rising incomes in Asia and ethanol subsidies in America have put an end to a long era of falling food prices
One of the odder features of last weekend's vote in Venezuela was that staple foods were in short supply. Something similar happened in Russia before its parliamentary election. Governments in both oil-rich countries had imposed controls on food prices, with the usual consequences. Such controls have been surprisingly widespread�a knee-jerk response to one of the most remarkable changes that food markets, indeed any markets, have seen for years: the end of cheap food.
In early September the world price of wheat rose to over $400 a tonne, the highest ever recorded. In May it had been around $200. Though in real terms its price is far below the heights it scaled in 1974, it is still twice the average of the past 25 years. Earlier this year the price of maize (corn) exceeded $175 a tonne, again a world record. It has fallen from its peak, as has that of wheat, but at $150 a tonne is still 50% above the average for 2006.
As the price of one crop shoots up, farmers plant it to take advantage, switching land from other uses. So a rise in wheat prices has knock-on effects on other crops. Rice prices have hit records this year, although their rise has been slower. The Economist's food-price index is now at its highest since it began in 1845, having risen by one-third in the past year.
Normally, sky-high food prices reflect scarcity caused by crop failure. Stocks are run down as everyone lives off last year's stores. This year harvests have been poor in some places, notably Australia, where the drought-hit wheat crop failed for the second year running. And world cereals stocks as a proportion of production are the lowest ever recorded. The run-down has been accentuated by the decision of large countries (America and China) to reduce stocks to save money.
Yet what is most remarkable about the present bout of �agflation� is that record prices are being achieved at a time not of scarcity but of abundance. According to the International Grains Council, a trade body based in London, this year's total cereals crop will be 1.66 billion tonnes, the largest on record and 89m tonnes more than last year's harvest, another bumper crop. That the biggest grain harvest the world has ever seen is not enough to forestall scarcity prices tells you that something fundamental is affecting the world's demand for cereals.
The fact that the world's second largest corn producer, China, had a Disastrous Harvest, losing somewhere between 1/3 and 1/2 of it's crop didn't help any, either. Neither did droughts in Argentina, and the EU holding 10% of it's wheat land out of cultivation.
The biggest reason, aside from opportunistic price-raising from food processors, however, in the rising cost of food is The Cost of Petroleum. It seems that a dollar rise in the cost of petrol has from two to three times the effect on food costs as a rise of a dollar in the cost of corn.
Posted by: rufus at December 13, 2007 6:02 AM