Rising food prices may herald new crisis

Global food prices have surpassed the peak reached during the 2007-2008 Global Food Crisis, according to the BBC.  The new information comes from the Food Price Index, compiled by the UN Food and Agricultural Organization (FAO) to track global food prices by measuring monthly price changes for a food basket composed of dairy, meat and sugar, cereals and oilseeds.

The concern is that, similar to 2008, food riots and civil unrest may erupt.  This past week brought riots in Algeria over food prices and unemployment.  There are, however, at least two reasons to think that this instability will not be as widespread.  First, food production in poor countries was high last year, while in 2008 it was low.  According to the New York Times, “countries in central, western and southern Africa have had generally good harvests from crops planted last year, easing reliance on imports.”

Second, “grain prices remain significantly below the highs they hit in 2007 and 2008,” according to Abdolreza Abbassian, FAO economist, as reported in the New York Times.  “Grain prices have a much greater impact on the food budgets of people in poor countries than prices for commodities like sugar or meat, which tend to make up a much smaller portion of their diet,” he said.

There is still reason for worry.  According to Abbassian, “The long duration of the high prices for the months to come may eventually result in these high prices reaching the domestic markets of these poorer countries…In the event of that, there is the chance of the repeat of the events of 2007 and 2008.”

In addition, The New York Times points out: “Ensuring sufficient grain supplies depends on good harvests this year in major exporting countries.”  If grain harvests are inadequate in 2011, then serious problems may occur.  With natural disasters hitting major wheat exporting countries, such as the heat wave in Russia last year and the recent flooding in Australia, there is reason for concern.

Domestically, the U.S. is not as affected by the global food prices because it does not rely as heavily as poorer countries on imports.

For a good synopsis of the threat of rising prices from food and other commodities, check out this video from the BBC.

Posted by Rishi Sidhu.

Image credit: Food and Agricultural Organization.