Rising food prices are on the menu

Across the globe, rising food prices are very much on the menu. And we’re all in for a shock when we see the bill. There have been remarkable rises in food prices, just this month. Cereal prices are up three percent on the month. Sugar is up by more than five percent, and dairy products have risen by more than six percent, again just in January. At the moment, only meat prices are holding steady. So what does this mean for world food prices overall?

Over the last two decades they were flat as a pancake, then a spike as the world economy boomed, followed by a slump as the credit crunch hit. But now the slump has been entirely reversed. Food prices higher than they’ve ever been – a new record on the FAO food price index.

Food prices have sparked demonstrations in Tunisia, Algeria, Jordan, Yemen and Egypt, the world’s biggest importer of wheat. Just a few days ago the President of Indonesia warned the World Economic Forum of food wars.

“Imagine the pressure on food, energy, water and resources. The next economic war or conflict can be over the race for scarce resources, if we don’t manage it together,” President Susilo Bambang Yudhoyono told Davos. He has also advised Indonesians to start planting food.

Last week Indonesia bought nearly five times its normal rice supply, forcing up prices in the region. There is a nervous wait until the country’s own harvest of its staple. The Government has removed import duties on rcie and soybean to keep prices down. But it does appear that competitive stockpiling is occurring. The immediate problem – the weather. The flooding in Australia hit food production there. But last year’s drought in Russia caused problems too.

Some influential voices are pointing their fingers at the US, at Ben Bernanke’s policy of printing $600 billion of money, which is at its half way stage. The US policy of printing money to stimulate its economy is flooding the financial system with cash. And some of that cash is being re-invested in commodities – wheat, cotton, oil – artificially driving up the price. QE2 is certainly raising the incentive for US financial institutions to take money out of safe US debt and spend it risky activities. Organisations such as the World Development Movement draw a direct line through QE2 to rising speculation to rising food prices.

That’s hard to prove – but it is what leading figures in India and China are now saying openly. Montek Singh, an Indian minister referred to his people as “collateral damage” in the US monetary policy. (Listen to Captain Wei, a Chinese shipping magnate blaming US for food prices at about 49:30 on this CNBC Davos debate http://www.weforum.org/events/world-economic-forum-annual-meeting-2011?idvideo=2619 ) Then again it is the rise of the mass middle class in India and China that has been a long term driver for rising food prices.

For now food prices are at a record. And it’s no coincidence that the riots and revolutions continue.