Thursday, December 27, 2007

Economist "Cheap No More" article addresses soaring food prices

The Dec 6th Economist has a comprehensive article about why food prices have soared over the last few years and are unlikely to come down soon. This problem is complicated and the repercussions for hunger and poverty are profound. The article covered many aspects of the issue in a thorough way. It shocked me to learn that all this expensive food and scarcity is happening during the biggest bumper crop for cereal that the world has EVER seen.

The reasons behind soaring wheat, corn and rice prices are varied and complex. They run from the usual suspects (US farm subsidies, ethanol) to the less obvious (decreased poverty in China and India means increased meat consumption which requires more grain fed to livestock). The ramifications of rising prices are also not straightforward. The problem causes hardship for providers of emergency food aid and people whose food budget is a high percentage of their income. Yet it is a boon for poor countries who can be food exporters like India, Swaziland, and South Africa. Countries like Malawi and Zimbabwe could also follow suit.

If you are interested in a big picture view of poverty and global economics, this is an article well worth reading.

Here are some exerpts...
"In every country, the least well-off consumers are hardest hit when food prices rise. This is true in rich and poor countries alike but the scale in the latter is altogether different. As Gary Becker, a Nobel economics laureate at the University of Chicago, points out, if food prices rise by one-third, they will reduce living standards in rich countries by about 3%, but in very poor ones by over 20%."

"This year the overall decline in stockpiles of all cereals will be about 53m tonnes—a very rough indication of by how much demand is outstripping supply. The increase in the amount of American maize going just to ethanol is about 30m tonnes. In other words, the demands of America's ethanol programme alone account for over half the world's unmet need for cereals. Without that programme, food prices would not be rising anything like as quickly as they have been. According to the World Bank, the grain needed to fill up an SUV would feed a person for a year."

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