Food Prices Surging, Raising Hunger Concerns

Wheat Field
The prices of farm commodities like wheat, corn, milk, and oils are rising.

The growth of biofuels, the impacts of climate change, and the rising prosperity of developing nations are all driving retail food prices to their biggest annual increase in 30 years, according to the Financial Times (FT). Experts worry that the continuing climb of wheat, corn, milk, and plant-oil prices are indicative of long-term inflation. “There is growing concern within the food industry that the present upswing in soft commodity prices is structural rather than cyclical,” John Parker, food analyst at Deutsche Bank, told the FT.

Climate change and the surge of biofuels industries in Europe, the United States, and elsewhere have led to shortages in raw materials. And as people in countries like China and India are more able to afford high-protein diets, the competition between food and other ends is pushed even higher. “With the strong upswing in economic fortunes of China and India this decade you have a very large opportunity for food price inflation,” said Lakshman Achuthan, managing director of the Economic Cycle Research Institute.

Experts warn that increases in food prices over the next 18 months may seriously affect developing nations, as food becomes less affordable for the poorest segments of the population. The costs of food in China are increasing more than twice as fast as other commodities, up 7.1 percent in April compared to a year earlier, the FT reports. In India, annual food price inflation is at its highest level since the late 1990s—above 10 percent on a year-on-year basis.

During the second half of 2006, ethanol demand tripled or quadrupled the price of corn tortillas in parts of Mexico, causing a national crisis, according to the Washington Post. “It is absolutely crucial for our population to keep eating tortillas,” said nutrition expert Amanda Gálvez of the National Autonomous University of Mexico, who notes that poor Mexicans obtain more than 40 percent of their protein as well as other nutrients from this staple food. Mexican growers, in turn, have begun planting rows of corn in fields traditionally seeded with blue agave, the main ingredient in tequila, as U.S. ethanol demand makes the grain more attractive, Reuters reports.

Most other countries are seeing food prices rise as well. Since the beginning of 2007, U.S. food prices have climbed 6.7 percent, seasonally adjusted, compared to 2.1 percent for all of 2006, according to the Bureau of Labor Statistics. If this trajectory continues through the rest of the year, it would be the largest annual increase since 1980, the FT notes. And the United Kingdom’s consumer price index indicated annual food price inflation of 6 percent in April, compared with 2.8 percent overall inflation.

Food companies have passed price increases on to consumers, but have also been forced to absorb some of the costs themselves, according to the FT. U.S. chocolate maker Hershey cut its profits forecast for 2007 due to increased milk prices, and Nestlé of Switzerland has declared it will not be able to cope with rising milk costs by merely boosting prices.

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This story was produced by Eye on Earth, a joint project of the Worldwatch Institute and the blue moon fund. View the complete archive of Eye on Earth stories, or contact Staff Writer Alana Herro at aherro [AT] worldwatch [DOT] org with your questions, comments, and story ideas.