Surging Food Prices Likely Here to Stay

related: Globally Grain Reserves Diminish, U.S. Stockpiles in Worse Shape
What They Don't Tell You About Storable Foods

November 19, 2010
By David Wilson

“Higher food prices are probably here to stay” even if China proceeds with price controls and other countries take similar actions, according to Brockhouse & Cooper Inc.’s Pierre Lapointe and Alex Bellefleur.

As the CHART OF THE DAY shows, a global food-price index from the United Nations Food and Agriculture Organization has more than doubled since 2000. U.S. consumer prices, excluding food and energy, have risen only 24% during the same period, as the chart depicts. DEYO NOTE: If food and energy were factored into this chart, the red trend line would be significantly higher. Look for the red line to point more vertically as food prices escalate.

China may establish price caps on “important daily necessities” to contain inflation, the country’s Cabinet said yesterday. Consumer food prices climbed 10.1% in October from a year earlier, more than twice the overall inflation rate of 4.4%.

Government-imposed limits “can have significant short-term impact on agricultural commodities and food prices,” Lapointe, a global macro strategist, and Bellefleur, a financial economist, wrote today in a report.

Yet a growing world population and rising demand for meat from emerging markets point toward higher prices over time, the report said. Food producers will have to be able to pass along cost increases to consumers in order to prosper, they wrote.

“World prices have risen alarmingly,” the FAO wrote yesterday in a study of the food outlook. “The international community must remain vigilant against further supply shocks in 2001 and be prepared.”