The Financialist +: ‘5 reasons food prices will continue to rise’

31st August 2012

As a new report by the Work Bank reveals that global food prices soared by 10% in July, with staples such as maize and soybean increasing by 25% to an all-time high, Marc Bastow writes that unfortunately for us, there are at least five reasons why food prices will continue to climb for the foreseeable future:

5 Reasons Why Food Prices will Continue to Rise

First, U.S. drought conditions result in smaller harvests which means prices rise even if farmers have hedged prices through the futures markets in advance. Second, thanks to similar conditions in Russsia (the world's third-biggest exporter of wheat); there's also been a spike in wheat prices. Third, the recent rise in gas prices (you didn't think oil was going to keep falling forever, did you?) caused by uncertainty in the Middle-East and Hurricane Isaac mean that the costs eventually will get passed on. Fourth, farmers complain that meeting demands of government regulation cost them money – and in some cases, their farms – and consumers end up pay eventually. Fifth, the old adage that ‘Profits are King' still holds true and food companies aren't in the game to be nice. Though Bastow says, "Some occasionally will eat increased prices in supply and distribution chains, but not all of them."

Glencore: 'Spike in food prices present a 'good' business opporunity

Intriguingly, however, the agriculture director of the notoriously secretive commodity trader, Glencore, declared this week that food price spikes present a "good" business opportunity. The Huffington Post's Leah Kreitzman explains that on top of increased margins from food price increases, Glencore also benefits from the response. "In 2011, the World Food Programme spent £50m of aid money on wheat from the firm to respond to the food crisis, during a period when profits from agricultural products doubled to $8.8bn."

No easy solutions

In criticism of the Bank's report, meanwhile, Douglas A. McIntyre argues that while organization offered solutions it would like to implement, none of them comes close to a solution to the mammoth problem. "And solutions cannot come from elsewhere either," he writes, "food shortages are too great, and the nations that might offer aid have become hog-tied by moves toward austerity."

"There was a time when countries led by the United States contributed billions of dollars of aid for people who could not feed themselves. Those programs have been curtailed by worry over national deficits. Contributions from Europe have been undermined even more as the viability of the European Union continues to be questioned and some of the economies there sink into deep and protracted recessions."


Previously on The Financialist:

Currencies in a drought


This Chart Sums Up 80 Years of US Energy Policy

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