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2008 June 01 Sunday
Global Food Prices Seen Rising Further

A report from the U.N. Food and Agriculture Organization (FAO) and the Organization for Economic Co-Operation and Development (OECD) projects even higher food prices in the coming decade.

Food prices in the past year have risen more than 20 percent in China, Kenya and Sri Lanka; more than 18 percent in Botswana and Pakistan; and 11 to 14 percent in Indonesia, South Africa, Egypt, Haiti and Bangladesh, according to the report.

No country has been immune. In the past year, the report says, the price of butter was up 50 percent in Poland, 40 percent in France and 36 percent in Jordan. Eggs rose 34 percent in the United States and 30 percent in Britain. The price of vegetable oil -- a key commodity in diets in developing countries -- rose 47 percent in Botswana and 18 percent in India. Meat prices jumped 45 percent in China.

The report predicts prices will continue their climb, on an average basis, in the coming decade. When the average for 2008 to 2017 is compared with the 1998 to 2007 period, beef and pork prices could be about 20 percent higher, raw and white sugar about 30 percent; wheat, corn and skim milk powder 40 to 60 percent; butter and oilseeds more than 60 percent; and vegetable oils more than 80 percent, the report says.

I think the authors of this report underestimate the extent of the coming food price rise because they incorrectly project lower oil prices.

The report estimates the cost of oil at $90 a barrel this year and next, gradually rising to $104 a barrel in 2017.

Peak Oil is starting to bite. Oil exports from big oil producers are declining. Natural gas is following oil up and that will continue to drive up the cost of ammonia for fertilizer and the costs of other inputs to farming that require energy.

By Randall Parker    2008 June 01 06:36 PM Entry Permalink | Comments (1)
2008 April 18 Friday
Rice Prices Quintupled From 2004 To 2008

In 2004 rice sold for $200 per ton. Pretty cheap. The price of rice has gone up by a factor of 5 in 4 years.

Rice exported from Thailand -- a global benchmark -- was trading at about $950 a ton Thursday, up from $360 a ton at the beginning of the year. Price offers at a Philippine auction Thursday topped $1,000 a ton. A few hours later, Chicago Board of Trade rice futures climbed to record levels.

Vichai Sriprasert, president of Thai exporter Riceland International, says Thai rice prices are nearly certain to hit $1,000 a ton. He adds: "The question is: How far will it rise beyond that?"

This has many causes. Population growth, the rise in oil prices, the growth in the use of food crops for biofuels, and bad weather in some parts of the world all contribute. Also, Asian industrialization boosts the demand for meat therefore more grain goes to feeding animals. In China yearly per capita meat consumption has risen from 20 kg in 180 to 50 kg per year in 2007.

That previous link shows Egypt as the biggest wheat importer. Egypt has curbed rice exports even as it buys lots of wheat abroad and sells it internally at below market prices.

The rise in oil prices boosts food prices in at least two ways. First off, higher energy costs boost the cost of producing inputs into farming such as fertilizer and tractor fuel. Second, the higher the price of oil the higher the price for biomass energy such as corn ethanol. So farm production costs and crop demand both rise with oil prices. Well, oil prices are going to go much higher as the oil production plateau continues and eventually world production starts falling.

International Monetary Fund Chief Economist Simon Johnson says rice is the biggest source of food for poor people.

The price of rice, the staple food for half the world, has doubled in the past year to an all-time high. Countries including Indonesia and Egypt have seen social unrest over high prices, and are attempting to restrain inflation and curb instability by limiting food exports or removing import duties on basic food staples.

``The implications are huge,'' Johnson said. ``In almost every corner of the world, poor people primarily eat rice these days, so the rice prices are clearly hurting people.''

Almost all the increase in world corn production since 2004 has gone to make corn ethanol in the United States.

According to the World Bank, global maize production increased by 51 million tonnes between 2004 and 2007. During that time, biofuels use in the US alone (mostly ethanol) rose by 50 million tonnes, soaking up almost the entire global increase.

Next year, the use of US corn for ethanol is forecast to rise to 114 million tonnes - nearly a third of the whole projected US crop. American cars now burn enough corn to cover all the import needs of the 82 nations classed by the UN's Food and Agriculture Organisation (FAO) as "low-income food-deficit countries". There could scarcely be a better way to starve the poor.

Biomass energy production is not just a US phenomenon. Brazil, Europe, Indonesia, and Malaysia are all getting into the act. The shift toward biomass energy production by big crop exporting countries bodes poorly for future food grain exports.

The United States is one of the few rice exporters that hasn't restricted exports.

The U.S. is seen as one of the last remaining reliable suppliers of rice in the world after Egypt, India, Vietnam and Indonesia curbed their exports to ensure adequate domestic supplies, industry members said. Some Asian countries also may shift their purchases to the U.S., although consumer preferences may limit the demand, they said.

I do not expect the demand for biomass fuel to go down even if politicians start taking a lot of heat for higher food prices because I expect oil prices to continue to rise. Also, China and some other Asian economies will continue to develop. Those with rapidly rising incomes will be able to afford the food price increases. Those with stagnant incomes are going to get hungrier. Some will starve.

Update: Some Ionia county Michigan farmers report costs are rising along with crop prices.

“Pretty much everybody I know, we're not going to plant any more corn than last year,” said Belding cash-crop farmer Joe Marhofer, who farms a few hundred acres of alfalfa and corn just off Krupp Rd. “Guys are really putting a pencil to it, they're looking to tighten their belts this year. With the input costs for corn so high, we decided not to break our normal crop rotation.”

Many farmers, state and nationwide, did adjust their crop rotation last year to take advantage of $4 corn, subtracting acreage that would have gone toward soybeans, wheat or alfalfa. But input prices - the costs a farmer takes on to plant, raise and harvest the crop - last year weren't as astronomical as they are now; cash-croppers say they've more than caught up.

This is important. If the crop price rise is driven by demand then we have the potential for supply to catch up and prices to drop. But if costs rise by as much as prices then high prices look like more of a long term condition. I'd like better insight into the cost side of farming. How fast are farm costs rising? Which costs are rising?

By Randall Parker    2008 April 18 11:38 PM Entry Permalink | Comments (8)
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