Food Price Spikes Become Part of the Scenery
Published: Jul 17, 2012
By Andrew Peaple
Rising food prices? Get used to it. This year's drought in key U.S. crop-growing regions has spurred talk of another global food crisis; the benchmark corn futures price has risen 21% this month, while wheat is up 16%. That's bad news for countries reliant on food imports, particularly developing nations. But food price volatility is becoming the norm.
For now, corn, wheat and soybean prices are still short of highs reached during the past five years. Stock levels relative to annual global consumption of these major traded soft commodities may be tight, but they're around their average over the past decade. Because prices were already high last year, the effect on overall inflation may not be as dramatic as in other years: corn is 13% higher than a year ago, but up 90% on July 2010.
Meanwhile, prices of other key foodstuffs like rice and cocoa remain subdued. That is important: a spike in rice prices in 2008 caused real strain in developing countries, which account for 96% of the grain's annual consumption. So far, food exporters have also refrained from protectionist measures like Russia's 2010 wheat exports ban. The decline in global freight rates has reduced food shipping costs.
Still, the impact of the latest food price increases will be felt most keenly in poorer countries, where food can account for 10%-20% of expenditure. Take Egypt, where food totals 38% of household spending. Its reliance on wheat imports caused food inflation to rise 18.4% last year, contributing to the social unrest that stoked the "Arab Spring." Rising soybean prices will likely complicate economic policy in China, which has a 60% share of the bean's global imports.
The worry is that changeable food prices have become the norm. Grain prices were relatively stable during the 1990s and early 2000s: The latest spike in corn prices is the fourth since 2006. With supply and demand balances tight and weather patterns increasingly unpredictable, food crisis may be destined to become a persistent feature of the economic landscape.
Write to Andrew Peaple at
andrew.peaple@dowjones.com