Wednesday, May 7, 2008

Why Food Prices keep going up???

It was reported in newspapers and TV almost every other day that Living Expenses globally are going up in an unsustainable fashion. It is especially painful when Food is one of it because food has to be consumed no matter who and where the person lives. It will also affect anyone except those who live in the Jungle. (Ermm.. Eg, Mas Selamat will not be affected if he is hiding well in SAF restricted areas consuming leftover combat rations from the Army)

I like to share a few points which I believe should be one of those contributing factors which make the food prices escalate over the past 1 year.

1) Emergence of China, India, Brazil and Russia
* The BRICs are getting more affluent. Many flocked from countryside to cities seeking employment. Their diet changed drastically in the city environment.
* An affluence diet consist of larger amount of meat and poultry.
* This increased demand leads to an increased demand for animal feeds consisting of corn, maize, wheat, etc
* This demand is not in pace with the growing affluent population in these emerging countries.

2) Reduction of suitable ground for farming
* Many farming grounds are forced to be abandoned due to declining water supply.
* There was little pressure to search for new farming ground in the past. But today, due to city-countryside income disparity and lacking of Government subsidies, many farmers had already left their post. It had created a smaller supply of labour as well.

3) Food are grown for Energy
* Fuel prices are escalating. Demand for alternative fuel like biofuel increased.
* Many agricultural products such as Corns are grown for biofuels and thus decrease possible supply in the market

4) Declining Inventories globally
* Food stockpile in most countrie declined due to pressure from their people on the rising food price.
* They have to release their inventories to prevent a larger hike of food price in their country.

5) Rising Oil Prices
* Higher energy price equates to higher logistical cost which will be passed down to the consumers
* Inventory carrying cost also rise due to higher demand for warehouses

6) Freak Weather
* Global warming are creating havoc in the world and humans find it hard to predict its pattern.
* Its either too much water or too much heat
* A lot of crops are killed by the weather

7) Technology peaking in the agriculture world
* Technology had averted a food crisis in the 1970s when more food are being produced by new technologies.
* The technology used are pretty much the same today and productivity are near their peak. Productivity improvements are not able to catch up with the increased demand.

8) Speculations
* Traders in the futures market speculated on the prices of food and bet that it will keep going up. It created a false impression on actual demand and force food prices to go up.
* Some farmers are keeping stock in expectation of higher food prices. This reduce supply in the market and force the price to go up further.
* Consumers fear also caused them to stockpile more food in their home and create more pressure to the market supply.


Anonymous said...

Good article! Well-written.! Any follow-up how to curb the prices of commodities going up? Don't ask me to take up a commodity fund to make money because prices are going up and I can profit from it.
Looking forward to reading your next article.

Anonymous said...

Hey Adrian,

Pls improve on your English. It is terrible. Lots of spelling and grammar errors.

Khiat Han Hwee Adrian said...

My English have never been good. Regret that I never learn proper English during my schooldays. Believe me not, I failed my English every year in Secondary School.

They promoted me because my other subjects scored distinctions.

Anonymous said...

Hi Anonymous, you've contributed almost nothing to the discussion by stomping on Adrian's English. It's his means of communicating what he wants to say. His standard of English is not the focus.

Perhaps you may find this article useful on disagreeing:

On the scale, your comment was pretty much DH0. Can improve some more annot?

Nice article for summing up the many possible causes for the rise in food prices. I've nothing to add but a link to an article that might be interesting to you: