This is a pretty complicated subject; even the experts have shouting matches about what is going on. From what I understand, there are three main pieces to the world food price puzzle.
First is supply. This is the one I've been most worried about. Growing food is very weather-dependent. Drought, floods, as well as exceptional heat and cold will decrease supply. And, as predicted, the world wide decrease of bees to colony collapse disorder, varroa mites and IBDS is causing some shortages.
Second is derivative trading on food futures. This is the one I least understand. I just read How Goldman Sachs Created The Food Crisis
and still don't quite get it. I need someone to explain to me how the money flows, from the grain growing in the ground to the toast I munch on. It seems pretty obvious, though, if billions of dollars are being siphoned off of the supply and demand chain, then prices would have to go up to cover that. What it feels like is a tax that the poor must pay so that the rich can become richer.
The third piece is that there are simply more mouths to feed. That one is pretty easy.
The Food and Agriculture Organization of the United Nations, the FAO, has a world price index of food. The "Food Price Index", or FFPI as it is also known, is compiled by the Food and Agriculture Organization (FAO) of the United Nations.
The Food Price Index is "a measure of the monthly change in international prices of a basket of food commodities".
The "baskets of food commodities" are:
-FAO Cereal Price Index
-FAO Dairy Price Index
-FAO Oils/Fat Price Index
-FAO Meats Price Index
-FAO Sugar Price Index
Each of the five price indices includes a number of different quotations.
The values of the five indices are compiled and then weighted with the average exports shares of each of the groups for 2002-2004. The final result is a figure that represents the current value of the FAO Food Price Index. For instance, the value of the index in February of 2011 was 236, which was an all-time high.
In the mid 90's, the index hovered around 100-110.
I am rather irritated with the report put out by the FAO, What happened to world food prices and why?
for this paragraph:
"Therefore, in order to answer the question as to whether the recent high-price episode is consistent with past commodity price behaviour of sharp but short-lived peaks and prolonged slumps or represents a break with past behaviour patterns, it is necessary to explore the nature of the apparent causes. Many different factors have been cited as responsible: production shortfalls, low stock levels, oil prices, biofuel demand, growing incomes in emerging economies, depreciation of the US dollar and speculation. While it is difficult to determine their individual contributions quantitatively, some of these factors could have a persistent effect on the average level of prices. There are some features of the current situation, notably the historically low stock levels for cereals and strong demand for biofuels, that suggest that, in spite of the downward adjustments from the peak of early 2008, the recent high prices may well not be short-lived but could persist for some years."
What I find irritating is the "production shortfalls, low stock levels" -- the cause of which is pretty well documented. The extreme weather brought by climate change has reduced world stock levels to an alarming low, and even this year's southern hemisphere production levels, the highest ever, won't be enough to make up for the shortfalls of the coming US growing season with the projected corn-belt drought to continue and perhaps worsen.
So, what I get from all of this:
-- Climate change is not going to slow down over the next 20 years; it's going to get worse. Our ability to increase food production will decrease if we don't make drastic changes in how/where we grow food in the near future.
-- The volatility in food production will only increase speculation.
-- Population continues to rise exponentially.
It's projected that food prices will rise in the US some 3%-4% by the end of 2013. I am curious to see how this will play out, how close the projections will match reality.