Monday, August 22, 2011

Staple Food Prices Soar Higher in the USA and the world

I found this interesting video which reflects on the rising costs of food inflation in the United States. Food pricing continues to rise, which is not only affecting to the United States but also influence the food industries across the world. How does this happen? Global food prices is not only affected by the higher fuel (gas) prices but there are many factors involved.

Overpopulation is the main issue when there is an increasing demand for the staples food (ie. rice, vegetable, wheat, meat, corn, soya, sugar etc). According to United Nation (UN), the planet Earth will be occupied by the total of 7 billion of living humans by late 2011. Asia accounts for over 60% and followed by Europe's 11% and Northern America's 5% of the world population. China and India have the highest of humans population of 37% for the Asia region.

To understand how the manufacturers produce food these days in order to accommodate higher demand of food supply by the huge world population then, you should watch the documentary called, Food Inc. The farmers breed hens within 3 months which is faster than the traditional method. They also use modified seeds to grow vegetables in order to reduce losses in crops. Watch the trailer here:

However, we begin to experience a decline of food supply since 2010, due to many cases of unpredictable climate change such as natural disaster (like earthquake), heat wave causes drought and heavy rain causes flooding across many countries with major tonnes of losses in crops which will drive food pricing to keep rising. Globally, the UN also sees food prices rising over the next 10 years as higher energy and fertiliser costs affect farmers. In a recent report, the UN said it expected cereal prices to be 20% higher on average, compared with the previous decade, while meat prices would be up to 30% higher. Food is like a cycle of chain. When there is a decline in food supply such as corn, other chains which depend on corn will be affected as well. When the corn price increases, other food chain and fuel (petrol) prices will be increased too.

** Updated: Referring to Global Times dated 21st June 2011, the average pork price nationwide in China reached 23.3 yuan ($3.6) per kilogram Monday, according to data posted on, a market information provider under China's Ministry of Agriculture. It's a historic high seen in mid-2008. Rising costs have narrowed down the profits because there's a decline on pigs raising leads to a cut in supply. Since corn is the main food supply to feed the pigs, the farmers also suffer with lower profits earning as the price of corn has increased to 2.2 yuan per kg, (about 83% higher than in 2008).

When the food pricing keeps rising, this will have "devastating" impact towards higher cost of living standard which will lead to higher inflation rate across the world. Higher inflation rate will cause more damage such as starvation and higher death tolls occur due to shortage and over pricey of food supply in the world. When the humans begin to suffer below the poverty level (the basic needs such as food, clothing, housing and money), this will likely lead to political unrest such as mass protests, riots and looting to occur.

    Here are some information about the commodity food prices which affects the world from 2010-2011

    WHEAT + 98%

    A searingly hot summer in 2010 devastated wheat and cereal crops across 2m square kilometres of Russia, Ukraine and Kazakhstan last year, sending world prices to twice what they were in 2008. This year, France and Germany, Europe's biggest cereal exporters, expect yields to be 15-20% down after the driest spring in nearly 100 years, adding to inflationary pressures.
    But because the wheat in a loaf of bread represents only around 10% of its cost in rich countries – the rest being energy, packaging, transport and shop costs – even the doubling of the commodity price in a year should only justify a small rise in the shop price of bread. Instead, supermarkets and the food industry have raised prices by as much as 25%.
    For most of the world, though, a series of major droughts in Australia, the US and Europe has led to increased hardship and shortages. In Lusaka, Zambia, where the commodity rise is reflected in the price that consumers pay, the cost of a loaf increased 75% from September 2010 to April this year.
    The Food and Agriculture Organisation in Rome suggests upward pressure on cereal prices will continue, if only because not much more will be planted. This is partly because the US and Europe are switching hundreds of thousands of acres of land from food production to biofuels. According to the US department of agriculture, nearly 44% of US corn is now processed for fuel.
    The key factor in many cereal prices is oil. Turmoil in oil-producing countries has pushed crude above $120 a barrel, which is expected to drive wheat and maize prices even higher. Higher crude prices make biofuels produced from crops more competitive while raising the cost of tractor fuel and fertiliser.

    BEEF + 32%

    The price of beef, and most meat such as chicken, lamb, pork and duck, depends on the price of the food that is fed to the animals. Nearly half the UK harvest is fed to livestock and 60% of the price of most beef is now in the feed.
    This makes meat prices extremely sensitive to weather extremes and speculation in grain future markets. In the past year, global grain harvests have been devastated by drought, heatwave, abnormal rains and flash floods producing record feed prices.
    But beef is especially expensive. Far fewer cattle are being reared after years of drought in Australia, the US and Europe. In Britain, where feed prices rose 25% in a few months last year, and beef and lamb are now at almost record prices, a weak pound has made it more profitable for farmers to export, and more expensive to import.
    According to the US department of agriculture, global beef production is declining because cattle farmers have been reducing the size of their herds to compensate for a major US drought, record feed prices and squeezed profits.

    SUGAR + 48%

    Eighteen months ago sugar was the "new oil" as commodity dealers in New York speculated on the possibility of an international shortage. The price, which for years never rose much above 12 cents per pound, more than doubled in less than 12 months and last year hit a 30-year high, from which it is not expected to fall much. A growing sweet tooth in China and other developing countries, plus a succession of bad harvests and extreme weather in places including Australia and Brazil, suggest the international price will indeed remain high.
    But the price of sugar is determined by more than just weather and speculators. Because ethanol can be derived from it, to make vehicle fuel, the sugar price more or less tracks energy prices. When oil spiralled in 2008, so did sugar. In addition, many governments subsidise the price and encourage producers to "dump" cheap sugar on the world market.

    COCOA + 80%

    Cocoa, the main ingredient of chocolate, is the most political of all food commodities, growing best in tropical countries which are prone to hurricanes, El NiƱo and coups.
    In 2006 it was being traded at around £896 a tonne; this year it peaked at well above £2,000. Part of the reason was Armajaro, a London-based hedge fund specialising in commodity trading, which last July bought around 240,000 tonnes of cocoa. This single transaction – worth around £650m – amounted to around 7% of annual global production and sent the price spiralling. It doesn't help that 40% of the world's cocoa comes from Ivory Coast in west Africa. Earlier this year cocoa shipments were disrupted during fighting between supporters of current president Alassane Ouattara and former leader Laurent Gbagbo following a disputed election last November. US commodity trading firm Cargill, which handles nearly 15% of the country's cocoa beans, stopped exporting cocoa when Gbagbo refused to step down – and prices jumped to nearly their highest in 30 years. Last month, with Ouattara installed, Cargill resumed exports and prices have dropped.
    Meanwhile, the recession in Europe and the US has dented demand and there are concerns about whether supply can keep pace with growing demand as India and China develop a taste for chocolate.

    COOKING OILS + 53%

    Palm, soy, sunflower, rapeseed, maize (corn) and other vegetable oils have never been in such demand. Palm oil is now the most traded vegetable oil in the international market and its price hit an all-time high in 2008 when the oil price peaked. Because most vegetable oils can be used as biofuel for cars as well as cooking oils, their prices are determined partly by the price of crude oil and partly by fluctuating demand and supply. Most oils have risen more than 20% on global markets in the year following bad weather last year in Indonesia and Malaysia, the world's two biggest producing countries, and soaring demand in economically burgeoning China and India.

    RICE + 33%

    In 2008, the price of rice tripled to nearly $1,015 per tonne as oil prices soared and speculators moved in to bet on shortages of what is the staple food for nearly half the world. Rice prices vary according to where and when it is grown and the crop variety, but the UN Food and Agriculture Organisation has recorded up to 70% increases in the last year, while the Manila-based International Rice Research Institute says the figure is closer to 20%. More recent price falls have been mainly due to increased exports from Thailand, Vietnam and the US. This year, Cambodia, India and Bangladesh are expecting bumper crops.
    All price rises are May 2010 to May 2011. Figures from the Food and Agriculture Organisation of the United Nations    
    (The source of food pricing 2010-2011 is extracted from Food Prices Rise Commodities at dated 17th July 2011)

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