Global Food Situation: This Does Not Look Good

I don't want to be an alarmist, but there seems to be something happening with global food prices that is historically unprecedented and not encouraging. The FAO (Food and Agriculture Organization of the UN) puts out a monthly index of global food prices - essentially an estimate of prices in international trade (see graph above).  After remaining relatively stable for decades, there was a sharp spike in prices in 2007/8.  In that period there were food riots in many countries where the population is highly dependent on imports and where they spend a large percentage of their family budget on food.  That peak ended abruptly by 2009 as farmers around the world responded to the high prices and produced more.  However, in late 2010 another spike occurred.  That one has been receding since mid 2011; however, the retreat was much slower than the previous cycle.  In January estimates released on 2/9/12, the combined index and its components have once again begun to rise. 

Some of the articles written about this describe it only as a rise after a 6 month decline.  What that analysis misses is the disturbing fact that the decline did not even come close to returning to the previous baseline.  This is easier to see by overlaying the data for the last 12 years in three year "cycles." (see graph below)



What we see is that between 2001 and 2003, and between 2004 and 2006, the Food Price Index rose by something like 10 points or just a few points/year.  The 2007-9 period involved the big spike, but returned to a fairly "normal" trajectory by the middle of the third year.  However, by the end of 2009, the index more than 50 points over what it was when this cycle began in 2007.  For the 2010-12 cycle, the index now seems to be on the rise and is already 50 points over where it began.  By the end of this year it could easily be far higher.  It is possible that the January rise is a blip, but it could also be additional evidence of an acceleration in the basic rise of food prices.  We will have to see what happens.

Farmers are certainly still responding to higher prices by trying to produce more, but frequently the weather works against them.  Some of this is also related to government actions like export bans.  Many have cited a role for commodities speculators as well.  That this is a complex issue is a given.  In any case, this does not bode well for the world's poor.

You are welcome to comment here or to email me at savage.sd@gmail.com.  There is an index with links to all my blog posts here.





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