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Food prices causing world crisis { March 2008 } Original Source Link: (May no longer be active)
http://www.pantagraph.com/articles/2008/04/05/money/doc47f805df2c260022372943.txthttp://www.pantagraph.com/articles/2008/04/05/money/doc47f805df2c260022372943.txt
Food prices rising around the world
By Katherine Corcoran
Associated Press
MEXICO CITY — If you’re seeing your grocery bill go up, you’re not alone.
From subsistence farmers eating rice in Ecuador to gourmets feasting on escargot in France, consumers worldwide face rising food prices in what analysts call a perfect storm of conditions.
Freak weather is a factor. But so are dramatic changes in the global economy, including higher oil prices, lower food reserves and growing consumer demand in China and India.
The world’s poorest nations still harbor the greatest hunger risk. Clashes over bread in Egypt killed at least two people last week, and similar food riots broke out in Burkina Faso, Cameroon, early last month.
But food protests now crop up even in Italy. And while the price of spaghetti has doubled in Haiti, the cost of miso is packing
a hit in Japan.
“It’s not likely that prices will go back to as low as we’re used to,” said Abdolreza Abbassian, economist and secretary of the Intergovernmental Group for Grains for the U.N. Food and Agriculture Organization (FAO).
No one knows that better than Eugene Thermilon, 30, a Haitian day laborer who can no longer afford pasta to feed his wife and four children since the price nearly doubled to $0.57 a bag. Their only meal on a recent day was two cans of corn grits.
“Their stomachs were not even full,” Thermilon said, walking toward his pink concrete house on the precipice of a garbage-filled ravine.
In the long term, prices are expected to stabilize. Farmers will grow more grain for both fuel and food and eventually bring prices down. Already this is happening with wheat, with more crops to be planted in the U.S., Canada and Europe in the coming year.
However, consumers still face at least 10 years of more expensive food, according to preliminary FAO projections.
Among the driving forces are petroleum prices, which increase the cost of everything from fertilizers to transport to food processing. Rising demand for meat and dairy in rapidly developing countries such as China and India is sending up the cost of grain, used for cattle feed, as is the demand for raw materials to make biofuels.
What’s rare is that the spikes are hitting all major foods in most countries at once. Food prices rose 4 percent in the U.S. last year, the highest rise since 1990, and are expected to climb as much again this year, according to the U.S. Department of Agriculture.
As of December, 37 countries faced food crises, and 20 had imposed some sort of food-price controls.
For many, it’s a disaster. The U.N.’s World Food Program says it’s facing a $500 million shortfall in funding this year to feed 89 million needy people.
In Egypt, where bread is up 35 percent and cooking oil 26 percent, the government recently proposed ending food subsidies and replacing them with cash payouts to the needy. But the plan was put on hold after it sparked public uproar.
“A revolution of the hungry is in the offing,” said Mohammed el-Askalani of Citizens Against the High Cost of Living, a protest group established to lobby against ending the subsidies.
In China, the price hikes are both a burden and a boon.
Per capita meat consumption has increased 150 percent since 1980, so Zhou Jian decided six months ago to switch from selling auto parts to pork. The price of pork has jumped 58 percent in the past year, yet every morning housewives and domestics still crowd his Shanghai shop, and more customers order choice cuts.
The 26-year-old now earns $4,200 a month, two to three times what he made selling car parts. And it’s not just pork. Beef is becoming a weekly indulgence.
At the same time, increased cost of food staples in China threatens to wreak havoc. Beijing has been selling grain from its reserves to hold down prices, said Jing Ulrich, chairwoman of China equities for JP Morgan.
“But this is not really solving the root cause of the problem,” Ulrich said. “The cause of the problem is a supply-demand imbalance. Demand is very strong. Supply is constrained. It is as simple as that.”
Meanwhile, record oil prices have boosted the cost of fertilizer and freight for bulk commodities — up 80 percent in 2007 over 2006. The oil spike has also turned up the pressure for countries to switch to biofuels, which the FAO says will drive up the cost of corn, sugar and soybeans “for many more years to come.”
In Japan, the ethanol boom is hitting the country in mayonnaise and miso, two important culinary ingredients, as biofuels production pushes up the price of cooking oil and soybeans.
A two-pound bottle of mayonnaise his risen about 10 percent in two months to as much as 330 yen (nearly $3), said Daishi Inoue, a cook at a Chinese restaurant.
“It’s not hurting us much now,” he said. “But if prices keep going up, we have no choice but to raise our prices.”
Italians are feeling the pinch in pasta, with consumer groups staging a one-day strike in September against a food deeply intertwined with national identity. Italians eat an estimated 60 pounds of pasta per capita a year.
In decades past, farm subsidies and support programs allowed major grain exporting countries to hold large surpluses, which could be tapped during food shortages to keep prices down. But new liberal trade policies have made agricultural production much more responsive to market demands — putting global food reserves at their lowest in a quarter century.
Without reserves, bad weather and poor harvests now have a bigger impact on prices.
“The market is extremely nervous. With the slightest news about bad weather, the market reacts,” said economist Abbassian.
That means that a drought in Australia and flooding in Argentina, two of the world’s largest suppliers of industrial milk and butter, sent the price of butter in France soaring 37 percent from 2006 to 2007.
Forty percent of escargot, the snail dish, is butter.
The same climate crises sparked a 21 percent rise in the cost of milk, which with butter makes another famous French food item — the croissant. Panavi, a pastry and bread supplier, has raised retail prices of croissants and pain au chocolat by 6 to 15 percent.
Already, there’s a lot of suspicion among consumers.
“They don’t understand why prices have gone up like this,” said Nicole Watelet, general secretary at the Federation of French Bakeries and Pastry Enterprises. “They think that someone is profiting from this. But it’s not us. We’re paying.”
Food costs worldwide spiked 23 percent from 2006 to 2007, according to the FAO. Grains went up 42 percent, oils 50 percent and dairy 80 percent.
But attempts to control prices in one country often have dire effects elsewhere. China’s restrictions on wheat flour exports resulted in a price spike in Indonesia earlier this year, according to the FAO. Ukraine and Russia imposed export restrictions on wheat, causing tight supplies and higher prices for importing countries. Partly because of the cost of imported wheat, Peru’s military has begun eating bread made from potato flour, a native crop.
“We need a response on a large scale, either the regional or international level,” said Brian Halweil of the environmental research organization Worldwatch Institute. “All countries are tied enough to the world food markets that this is a global crisis.”
Katherine Corcoran is based in Mexico City. AP correspondents worldwide contributed to this report.
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