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Food price index at record high

The UN Food and Agriculture Organisation (FAO) has just released figures which show that their Food Price Index reached a record level in December, after rising for six consecutive months. The index measures a basket of food prices which is made up of meat, sugar, dairy, cereals and oilseeds. In December this index reached 214.7, compared to 206 in November and surpassed the previous high of 213.5 in June 2008.

This index covers a lot of the world’s staple foodstuffs including items such as wheat, rice and corn, and soaring prices are obviously a threat to the world’s poorest peoples. There is obviously a threat of increased hunger and poverty in some of the world’s poorest nations. In 2008 when the index reached its previous peak, there were food price riots in several countries.

Food Price Index Source: FAO

There will also be an impact on basic food prices in the UK and other developed countries, which is allied to strong growth in prices for some precious metals and oil. As inflation rises as a result, we will see added pressure on the Monetary Policy Committee of the Bank of England to raise interest rates. This in turn could dampen companies’ investment plans, but on the other hand will reward savers who are currently experiencing negative real rates of return on their savings. However, what may cause discomfort in the UK is a case of life and death in other parts of the world.

Why are prices rising? There are several factors which have caused the price of cereals, particularly wheat, to rise. Russia is responsible for 11% of global wheat exports, but has put a ban on exports following widespread fires last year which destroyed a significant amount of their crop. At the same time floods in Queensland, Australia are hitting the country’s supplies, and Australia, like Russia, is also responsible for about 11% of global exports.

Added to this, corn prices have gone up because of the increased demand for the crop to turn into biofuels and droughts in Argentina, which is a major supplier of corn, have also had an effect. All in all, global food prices have now risen by over 80% in the past ten years.

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Posted in Food price inflation

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