FOOD!
We've been thinking about "FOOD!" for sometime now, especially as our own grocery bills continue to climb. Rising food prices hurt you and me – and they hurt others in other countries even more. This past week the UN's Food and Agriculture Organization conducted a "High-Level Conference" in Rome on "Food Security", highlighting the worldwide nature of the issues in the most fundamental human concern, having enough to eat. Numerous world leaders attended.
We first wrote about this emerging problem in December, [click here], as the world price of rice was surging to new highs. At that time, the futures price of "rough rice" on the Chicago Board of Trade commodity exchange was about $13.50/hundredweight (100 pounds). This turned out to be only the beginning. This price continued on up and peaked in late April almost twice as high, at nearly $25.00! These levels compare to an average over recent years of less than $8.00 and a previous record of $12.32 at the end of 1996. In the last several weeks, there has been a bit of relief, as the price backed off to below $20 in late May. In light of the dramatic cost increases for this basic, nutritious food item, we urged you in December to give generously to the UN's World Food Program and to Episcopal Relief & Development's food security efforts. This recommendation obviously still stands. In fact, the need is much greater now.
Other crops show similar patterns. Corn has been hovering right at $6.00/bushel, a mind-boggling difference from the average of about $2.55 over the last dozen years or so. It jumped just the last couple of days to about $6.50. Soybeans had been $6.13/bushel on average before their current price explosion began last summer, but lately they have been more than twice that, roundly $14.00; they spiked to a high of nearly $16.00 at the end of February.
You and I are feeling these prices in our own grocery shopping, and we'll come back to that in a later article. Today, following the meeting of world leaders in Rome, we'll talk about some other countries' experiences. Hardest first.
The FAO background material highlights the problems for a variety of poor countries. They list 22 that import virtually all of their petroleum, substantial portions of their grains, and have significant shares of their population who are undernourished. We direct you to the report for the entire list.* Some of the familiar ones for us are Botswana, with 76% of its grain imported and 32% of its people undernourished, Haiti with 72% grain imports and 46% undernourished and Liberia at 62% imports and 50% malnourished. Because these countries are big importers, they face sizable widening of their balance of payments "current account" deficits as well as the impact of higher prices on their people's ability to buy food.
But other, better developed economies are strained as well. Last week, the European Commission's statistical arm Eurostat published a compilation of consumer food prices in the 27 members of the EU. It's especially interesting that the "middle income" countries are suffering more food inflation than the leaders. Over the last 12 months, Germany has seen a 6.4% increase in overall food prices and 8.4% in breads and cereals. Spain, 6.8% in total food and 10.1% in breads and cereals. These would seem to be bad enough. But mid-range Bulgaria has had 25.4% in total food inflation and 38.4% in breads and cereals. Lithuania, 18.1% and 26.6%. Even Slovenia, a rapidly invigorating economy and one belonging to the Euro Area (using the euro as its currency), has suffered 12.2% food price increases and 16.9% in breads and cereals.
I wish I could explain why the poorer countries and those just really building up their living standards get hit with larger price increases than those that are already highly developed and therefore better able to withstand the hardship. At first, it seemed that exchange rates might account for the differences between Lithuania, for example, and Germany. But Lithuania and Bulgaria both fix their currencies to the euro, and as noted, Slovenia is a member of the Euro Area, so it is not weakness among any of the European currencies that produces differences in their food inflation. We could speculate that differences in the development of food production and distribution mean prices can increase more in one country than another. Even so, we note that according to Wikipedia, there are numerous supermarket chains in Bulgaria and some in the other two mid-range countries we mention here. Varying government agricultural and trade policies may also be factors. But without much more extensive research, we can't answer this well – and we're not sure anyone has done so.
One expectation we can voice, taking a note from the FAO report, is that high farm prices should bring about more farming, expanding supplies and providing some price relief. Not much will help in this growing season, but beginning next year, perhaps more land can be cultivated and improved farming practices will help increase yields. The FAO's conference was instrumental in bringing renewed emphasis on such supply-oriented efforts. The conference leaders had hoped, too, to convince countries to liberalize trade policies, and some participants made offers to do so, such as lifting export bans on rice. But not all did. What did come out of the meeting was promises of larger amounts of food aid, in particular, $1.2 billion from the World Food Program, financed by a sizable donation from Saudi Arabia. Often, press reports explain, such promises of larger food aid turn out to be old money given a new name. But this is a genuinely new gift and is significant.**
There's much more to talk about regarding the world food situation. We want to discuss overall supply and demand conditions, including the impact of biofuels. We are surprised to see, for instance, that current US Department of Agriculture projections show 4 billion of this year's expected 12-billion-bushel US corn crop are to be devoted to ethanol production, fully one-third of the entire domestic corn output. And we will return in still another commentary to where we started today: this is hitting the pocketbooks of ordinary Americans, and it's not likely to reverse soon, so we want to understand more.
===========================
*"Soaring Food Prices: Fact, Perspectives, Impacts and Actions Required". Food and Agriculture Organization of the United Nations. April 2008. Available on the FAO's website.
**"Only a Few Green Shoots." The Economist, June 7th, 2008, pages 70-71.
Episcopal Relief & Development, as noted above, is active in the relief effort. Their work in Haiti was described in an EpiscopalLife online article just this past Wednesday, "In Haiti, Episcopalians respond to food price crisis" . Once again, we can't urge you often enough to contribute to this extremely worthwhile cause. Go to www.er-d.org to donate.
We first wrote about this emerging problem in December, [click here], as the world price of rice was surging to new highs. At that time, the futures price of "rough rice" on the Chicago Board of Trade commodity exchange was about $13.50/hundredweight (100 pounds). This turned out to be only the beginning. This price continued on up and peaked in late April almost twice as high, at nearly $25.00! These levels compare to an average over recent years of less than $8.00 and a previous record of $12.32 at the end of 1996. In the last several weeks, there has been a bit of relief, as the price backed off to below $20 in late May. In light of the dramatic cost increases for this basic, nutritious food item, we urged you in December to give generously to the UN's World Food Program and to Episcopal Relief & Development's food security efforts. This recommendation obviously still stands. In fact, the need is much greater now.
Other crops show similar patterns. Corn has been hovering right at $6.00/bushel, a mind-boggling difference from the average of about $2.55 over the last dozen years or so. It jumped just the last couple of days to about $6.50. Soybeans had been $6.13/bushel on average before their current price explosion began last summer, but lately they have been more than twice that, roundly $14.00; they spiked to a high of nearly $16.00 at the end of February.
You and I are feeling these prices in our own grocery shopping, and we'll come back to that in a later article. Today, following the meeting of world leaders in Rome, we'll talk about some other countries' experiences. Hardest first.
The FAO background material highlights the problems for a variety of poor countries. They list 22 that import virtually all of their petroleum, substantial portions of their grains, and have significant shares of their population who are undernourished. We direct you to the report for the entire list.* Some of the familiar ones for us are Botswana, with 76% of its grain imported and 32% of its people undernourished, Haiti with 72% grain imports and 46% undernourished and Liberia at 62% imports and 50% malnourished. Because these countries are big importers, they face sizable widening of their balance of payments "current account" deficits as well as the impact of higher prices on their people's ability to buy food.
But other, better developed economies are strained as well. Last week, the European Commission's statistical arm Eurostat published a compilation of consumer food prices in the 27 members of the EU. It's especially interesting that the "middle income" countries are suffering more food inflation than the leaders. Over the last 12 months, Germany has seen a 6.4% increase in overall food prices and 8.4% in breads and cereals. Spain, 6.8% in total food and 10.1% in breads and cereals. These would seem to be bad enough. But mid-range Bulgaria has had 25.4% in total food inflation and 38.4% in breads and cereals. Lithuania, 18.1% and 26.6%. Even Slovenia, a rapidly invigorating economy and one belonging to the Euro Area (using the euro as its currency), has suffered 12.2% food price increases and 16.9% in breads and cereals.
I wish I could explain why the poorer countries and those just really building up their living standards get hit with larger price increases than those that are already highly developed and therefore better able to withstand the hardship. At first, it seemed that exchange rates might account for the differences between Lithuania, for example, and Germany. But Lithuania and Bulgaria both fix their currencies to the euro, and as noted, Slovenia is a member of the Euro Area, so it is not weakness among any of the European currencies that produces differences in their food inflation. We could speculate that differences in the development of food production and distribution mean prices can increase more in one country than another. Even so, we note that according to Wikipedia, there are numerous supermarket chains in Bulgaria and some in the other two mid-range countries we mention here. Varying government agricultural and trade policies may also be factors. But without much more extensive research, we can't answer this well – and we're not sure anyone has done so.
One expectation we can voice, taking a note from the FAO report, is that high farm prices should bring about more farming, expanding supplies and providing some price relief. Not much will help in this growing season, but beginning next year, perhaps more land can be cultivated and improved farming practices will help increase yields. The FAO's conference was instrumental in bringing renewed emphasis on such supply-oriented efforts. The conference leaders had hoped, too, to convince countries to liberalize trade policies, and some participants made offers to do so, such as lifting export bans on rice. But not all did. What did come out of the meeting was promises of larger amounts of food aid, in particular, $1.2 billion from the World Food Program, financed by a sizable donation from Saudi Arabia. Often, press reports explain, such promises of larger food aid turn out to be old money given a new name. But this is a genuinely new gift and is significant.**
There's much more to talk about regarding the world food situation. We want to discuss overall supply and demand conditions, including the impact of biofuels. We are surprised to see, for instance, that current US Department of Agriculture projections show 4 billion of this year's expected 12-billion-bushel US corn crop are to be devoted to ethanol production, fully one-third of the entire domestic corn output. And we will return in still another commentary to where we started today: this is hitting the pocketbooks of ordinary Americans, and it's not likely to reverse soon, so we want to understand more.
===========================
*"Soaring Food Prices: Fact, Perspectives, Impacts and Actions Required". Food and Agriculture Organization of the United Nations. April 2008. Available on the FAO's website.
**"Only a Few Green Shoots." The Economist, June 7th, 2008, pages 70-71.
Episcopal Relief & Development, as noted above, is active in the relief effort. Their work in Haiti was described in an EpiscopalLife online article just this past Wednesday, "In Haiti, Episcopalians respond to food price crisis" . Once again, we can't urge you often enough to contribute to this extremely worthwhile cause. Go to www.er-d.org to donate.
posted by Carol S. | 6/08/2008 07:04:00 PM
2 Comments:
Carol--Thank you for this terrific information about relatively how other countries food prices are affected compared to U.S. I have heard that Europe has less oil/fuel price built into their food prices than the U.S. (from a MIT economist) but is this really true? And what about countries with, and without food self-sufficiency? Is the U.S. still paying farmers not to produce? (I believe we're still subsidizing prices?)
Thanks in advance for more GREAT information.
Sincerely, Barbara B.
Barbara B., thank you for your good questions. You are prompting us to look at the recent US Farm Bill and at recent changes to the European Commission Common Agricultural Policy ("CAP"), and we will at least touch on some of their points in the article in preparation. In short, both regions do indeed subsidize their farmers. But also important now are initiatives in developing countries to make agriculture a real part of that "development", an important change in the long-held philosophy that only "industry" counts toward economic advancement.
Stay tuned! -- Carol S.
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