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Old Tuesday, May 06, 2008
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Default Global Food Trends - Overview

Global Food Trends - Overview

A man sells rice in Minguindano Province, Mandanao Island in the southern Philippines, March 2008. Rice prices have surged to a 20-year high.

The world food situation is rapidly changing as a result of numerous factors. The most critical is the unprecedented increase in the price of food. Together with diminishing food stocks and difficulties accessing food by some communities, these conditions have led to a complex set of challenges – humanitarian, socio-economic, developmental, political and security-related.

Most urgent are the immediate hunger needs of millions of people. Over the longer term, agriculture and trade practices must be restructured to meet essential needs.

There are several trends driving the current price boom and strain on food stocks:

Increase in oil prices
Record-high oil prices have had two effects. First, food crops are increasingly diverted for use as fuel. Second, high oil and energy prices impact the entire value chain of food production – both directly (cultivation, processing, refrigeration, shipping, distribution) and indirectly (manufacture of fertilizers, pesticides etc).

Demand for higher-input food
Rapid economic growth in populous countries such as China and India is leading to increased demand for meat and dairy products and driving up overall grain prices. One kilo of beef requires about 7 kilos of cereals to feed.

Decreasing levels of food stocks
In 2006-2007, a year’s worth of wheat was lost to drought in Australia, and cold weather caused grain crops to fail in Europe and the United States. Export restrictions by major grain producers – imposed in order to secure domestic supply – have further exacerbated rising prices.

Climate change and environmental degradation
Extreme weather events – drought, floods, and cold snaps – are affecting local harvests and food availability. Global demand for water has tripled in the last 50 years, and high rates of soil loss to erosion and desertification could diminish the capacity to produce enough food.

Growing use of bio-fuels
Demand for fuels made from crops such as sugarcane, wheat, and maize is pushing up commodity prices. Food supply decreases as crops are shifted to the fuel market. Currently 20 per cent of the United States corn crop goes into ethanol production – a figure likely to rise to 32 per cent by 2016.

Inelastic food-production market
A short-term issue is that food supply is quite inelastic – in other words, supply reacts slowly to increases in demand. IFPRI estimates that aggregate agricultural supply increases by about 1-2 per cent for each 10 per cent increase in price - and by even less when processes are so volatile.

Population growth
It is estimated that by 2050 there will be billions more mouths to feed, exacerbating the demand for food (from 6.1 billion people in 2000 to an estimated 9.2 billion in 2050).

Stock market trends
A shift in investment strategy toward commodity future markets in the past year has also affected food prices. When futures prices bumped up, the low dollar made many firms channel their funds into agricultural markets, further raising prices (as expected). As firms now face the mortgage crunch, there is uncertainty if will they retrench, sell out of food futures, and let prices ease.
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