Global Food Prices Hit All-Time High/ Forbes

By AGUSTINO FONTEVECCHIA

Sugar leads the way, but all agricultural commodities are on the rise.

Adding one more brick to the wall, world food prices have hit a new all-time high in January, according to the UN’s Food and Agriculture Organization (FAO).  Along with crude oil’s surge past $100 a barrel thanks to civil unrest and violence in the streets of Egypt, and Cyclone Yasi tightening the supplies of hard commodities, the global economy will have to face increased inflationary pressures and the possibility of civil unrest amongst the world’s poor.
Reaching its highest value, both in nominal and real values, the FAO’s Food Price Index gained 3.4% in January with increases in all its components with the exception of meat prices, which remained unchanged.  Global food markets have tightened on every angle, with increased demand from emerging markets and supply pressure from bad weather pushing prices even higher.
The index showed the cost of dairy products and oils/fats gaining the most in January, rising 6.2% and 5.6% respectively.  Sugar hit a 30-year high in New York on February 3 and cereals show no sign of slowing down either.  As global attention shifts from possible deflation to the very real impacts of commodity-price inflation, analysts are preparing for the worst.  (Read Bob Lenzner’s piece on the surge of hard commodity prices, Expect Spike In Coal, Iron Ore, Copper Stocks Due To Australian Cyclone, Floods).
“These high prices are likely to persist in the months to come. High food prices are of major concern especially for low-income food deficit countries that may face problems in financing food imports and for poor households which spend a large share of their income on food,” said FAO economist and grains expert Abdolreza Abbassian.  “The new figures clearly show that the upward pressure on world food prices is not abating,”
A global food crisis could be right around the corner, as the vivid memory of riots in 2008 is fueled by the very real riots occurring in Algeria and Mozambique.  But, as commodity-price inflation extends much farther than just food this time, the possibility of civil unrest appears even greater.  Droughts in Argentina are punishing producers of soybeans and cereals, while Cyclone Yasni and continued floods are driving up the prices of coal, iron ore, and zinc, key components for the massive infrastructure projects in emerging economies like China, India, and Brazil. (Read On The Verge of a Global Food Crisis).
Add the all-important price of oil to the equation and it begins to look like a time bomb.  Violent protests in Egypt followed a social uprising in Tunisia, as the country’s vast young population protested escalating prices and continued unemployment.  Similarly in Egypt, inspired youth movements, angered for the same reasons, stood up to President Hosni Mubarak and his 30-year rule.  Oil tanker operators and investors became nervous that the Suez Canal or the Suez-Mediterranean Pipeline could see their operations disrupted, as the protests turned violent. (Read Uncertainty in Egypt Takes Oil North of $100, Tankers Shed Gains).
With protests erupting in Yemen on Thursday, the fear of contagion has already rattled the oil markets, where Brent Crude has traded above $100 a barrel for at least a week and seems to have found its footing.  On February 3, March contracts for Brent Crude, one of the global bench marks, stood at $102.33.  Bloomberg even reported that “investors increased bets that oil prices may surge to as much as $250 a barrel” citing increased interest in $250 call options for December contracts.
As mentioned before, market forces are putting increased pressure on commodity prices, which in turn pump up the heat on the governments and populations of emerging economies, especially the poorer ones.  Only a few years after the collapse of the global economy, it is the fear rampant inflation, a sign of growing to fast, that threatens to disrupt social order, topple governments, and spill blood.