No Relief In Global Food Prices

The Food and Agriculture Division of the United Nation reported that food prices remained mostly unchanged in April. That is hardly good news since February and March prices were, for many foods, at all-time highs. And, prices are 36% above those in April of last year.

“A sliding dollar and increased oil prices are contributing to high food commodity prices, particularly grains,” said David Hallam Director of FAO’s Trade and Market Division. “With demand continuing strong, prospects for a return to more normal prices hinge largely on how much production will increase in 2011 and how much grain reserves are replenished in the new season.”

The lack of a drop in prices means that over 20 million people will be driven into poverty in the near-term because of what they have to buy to eat. The prospects are almost certain that this number will increase by several millions in the next quarter. And, there is really nothing that can be done about it, even if commodities prices continue to fall. Production of most widely planted agricultural products like wheat and corn has been set for this year. The habit of the US and other developed nations to ship food to poor nations has been undermined by austerity battles as these countries fight to bring down national deficits.

The most ominous thing about the price of food is that even if commodities prices move down 20% and the price of most foods with that, costs will still be close enough to historic highs that the relief for the hungriest people will only be modest. They cannot afford what they need to eat today. Some price relief does not mean that the poor will not continue to struggle to feed themselves because of their tiny incomes.

A drop in commodities prices, if it is permanent, is a false signal. That is unless agricultural commodities price come down 30% or 30% very quickly which will not happen. And, even if they did, it will take nearly a year to reset prices as another planting season begins later in 2011. Food will be unaffordable for much of the world, no matter what transpires, until well into next year.

Douglas A. McIntyre