Friday, March 18, 2011

Why are food prices rising 2011

Food prices around the world are significantly rising in 2011. The US consumer food inflation index has surged by the highest percentage in 37 years. The main reasons identified for the increase in prices are higher oil prices, natural disasters e.g. flooding in Australia, droughts in brazil etc.

There also has been arguments that commodity speculation and change in diets of people have also had a significant affect on Food prices.

My personal view is that the devaluations of the major currencies is what is causing the most significant cause in the increase of food prices. I also believe food security will be one of biggest issues going forward, especially if the natural disasters we have been facing in the last few years continue.

Below is percentage of income spent on countries.

In US more then 35 million people receive Food Stamps then there is QE2 all having negative affect on food prices. As the FED prints more money in which US can buy more of the worlds food supply through government spending.

There is also the argument that as much more people entering middle class their dietary expectations change which will have an affect on food prices as they start purchasing food that otherwise would be purchased at a cheaper price in other countries e.g Egypt.

The major increase in the population of the middle class is China and India where in China it is expected to mover from 65 million in 2005 to around 700 million in 2020. To put this in perspective thats an increase of two times the population of the USA are going to expect to be fed more expensive food.

China is also facing their worst drought in sixty years which is threatening their wheat crop. China, the world's largest wheat producer. Traditionally self-sufficient in grain, the Chinese may be compelled to tap some of their $2.85 trillion in foreign exchange reserves to import wheat to feed their hungry people. This of course will drive up the wheat prices and really wheat is one the key foods for majority of poor people.

Interesting times ahead.

Sister saying it costs $5 a kg for sugar in Fiji where sugar there is our main agricultural export and she has a sugar cane farm. I remember when you could get 1 kg sugar for less then one dollar last year.

Affect of planting of crops on availability of money is also a factor in amount of crops that will be planted going forward. And this is being harder due to financial situations affecting lending institutions.


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