First it was shelter. Now food.
Still reeling from the U.S. housing collapse, global markets are confronting a dangerous new bubble: food inflation.
The price of the world's three main grains – rice, wheat and corn – have all more than doubled in the past year, affecting just about everything people eat, and fanning social unrest in some of the most unstable corners of the world.
Canadians might be forgiven for not noticing. The remarkable rise of the loonie has so far largely insulated them from the kind of rampant inflation that is hitting much of the rest of the world. Canadian prices were up 1.8 per cent in February compared with last year, less than half the U.S. inflation rate – a gap economists say is largely due to the strong dollar.
Signs of stress are emerging just about everywhere else. Food riots have erupted in Egypt, Morocco, Senegal and Cameroon. In Thailand, rice farmers are sleeping in their fields to prevent thieves from stealing their crops.
Numerous countries, including Argentina and Vietnam, have capped or taxed exports of key farm products in a bid to quell domestic inflation, running the risk of violating international trade rules. To ease growing shortages, the Philippine government has asked fast-food restaurants to serve less rice with meals to ease shortages.
In Egypt, the price of many basic foods has spiked as much as 50 per cent in a matter of months. In Asia, where rice is part of virtually every meal, prices are rising almost daily.
The United Nations World Food Programme warned this week it will have to ration food aid to cope with soaring grain prices unless it gets an emergency cash infusion of $500-million (U.S.) from donor countries.
“We are seeing a new face of hunger – people who suddenly can no longer afford the food they see on store shelves,” lamented Sheila Sisulu, deputy executive director of hunger solutions for the UNFP. “Prices have soared beyond their reach.”
And yesterday Chinese authorities announced they will pay farmers substantially more for rice and wheat as they try to boost output and cool surging inflation that threatens to spark unrest ahead of the Beijing Olympics.
“This could be the next bubble,” suggested William Cline, an agricultural economist and senior fellow at the Peterson Institute for International Economics in Washington.
The trick is sorting out how much of the recent inflationary burst is permanent, and how much is caused by speculators flocking to commodities to escape the turmoil in financial markets. “There's a lot of speculative money that has gone into commodities as a store of value in turbulent times,” Mr. Cline said.
There are also longer-term factors pushing food prices higher, including global warming, Asia's dramatic economic emergence, $100-a-barrel oil and the United States's love affair with ethanol.
“Markets do adapt over the longer term,” said Kimberly Elliott, a senior fellow at the Washington-based Center for Global Development.
“But in the short-run, we are going to continue to see some pretty serious effects in parts of the world.”
The era of cheap food may be over for a while. Food prices soared 40 per cent between 2006 and 2007, according to a key UN index, and the rate of inflation has accelerated this year. In a report this month, the United Nations predicted that food prices are likely to remain high for a decade.
The most lasting cause of higher food prices is certainly population growth. As countries such as China and India grow and prosper, they are consuming a greater share of the world's food. Prosperity affects how much people eat and what they eat.
