Thursday, January 10, 2008

The Cheap Food Era Is Over

Foods had been getting cheaper in the past thirty years. In 1974-2005 food prices in world markets fell by three quarters in real terms (adjusted for inflation). Heavy agricultural subsidisation by nations contributed in part to the falling real prices.

Since 2005, in real terms, prices have jumped by 75%. The Economist's food-price index is higher today than at any time since it was created in 1845. In other words, what we are presently facing is a record high food inflation, or agflation as it is commonly refered to now.

The underlying factors leading to the present phenomenon are surging oil price and long-running changes in diet that accompany the growing wealth in emerging economies.

For example, a Chinese consumer who ate 20 kg of meat in 1985 will scoff over 50 kg of the stuff this year. This inevitably produces a chain reaction, pushing up demand for grain.

Spiralling oil price led to a fanatical search for cheaper substitute. Biofuel came in as one of the best choices, triggering off a race for crops between men and machines (vehicles). Maize subsidies in the West provided incentive for farmers to switch from other crops to maize, making food prices go crazy!

I agree that it is time for gluttons to cut down diet in fighting against agflation. But the ordinary folks are definitely harder-hit by the rising cost than the better-off groups. That is precisely why I called it a threat to many.


Anonymous said...

There was a time when we could buy a packet of sweets for just 5 cents. Now it is 20 cents and more than that. " Extras " boost the price, like packaging and the kind of place the product is sold. Each time we go out, it is at least 50 ringgit malaysia we spent. Your school going kids spend 10 ringgit malaysia if he is going to eat in the school canteen and use transport to come home. Therefore we all need a salary hike. In addition, we are hiding towards an industralized country status and this means that prices and salaries have to go up. For those who can afford to buy fireworks, it means that they are really rich. Rich to burn the money.

Tony Hii said...

Anonymous, in real terms, most of us are having negative growth in income. That makes the rising cost suffocating to ordinary folks.

Bengbeng said...

sigh sigh i try to forget reality n u remind me all the time :)

Tony Hii said...

Bengbeng, we are all in the world of reality!

oldie but goodie said...

Salary hike? Once there's wind of it on the grapevine, the prices of things have already shot up! The business people are VERY quick in jumping on the bandwagon! Buy less, spend less and save more! Buy only the necessities! Prepare breakfast for kids to bring to school (...and if u're TOO lazy, then u PAY for ur laziness)! It's healthier and cheaper!

P.S.: If people have less money to spend, why on earth do I hear those earth-shattering fireworks every night even though Chinese New Year is still about a month away? Are those things free/cheap? Do people have SO much money to burn?

Tony Hii said...

Oldie but goodie, these people are better off and they have the means to spend lavishly, whereas the ordinary folks are now made worse off.