This is interesting. The FAO index we talked about yesterday has a set of subindexes for different types of food (graphed above - note that 2002-2004 = 100 on the y-axis). If you study the 2007-2008 food price spike, it was driven most strongly by cereal and oil prices (consistent with the idea that it was, at least in part, biofuel driven). The cereal/oil complex is high again now, but not nearly as high as in 2008. What is much higher is meat, and especially sugar, the price of which has gone nuts lately (so to speak).
Apparently, the causes are fears over the Australian sugar harvest due to the flooding there, combined with losses in the Florida sugar harvest due to unusually cold weather there in December. So that part is weather related.
Of course, it's tempting to score rhetorical climate change points here, but I suspect rather that underlying demand is growing rapidly with the increasing economic growth in China and other developing countries, and so there's little slack in the system, and then every bit of bad weather around the globe starts to translate into big commodity price moves.
Stuart,
ReplyDeleteHave you read _The Great Wave_, by David Hackett Fischer? Fischer studied comodity prices from in Europe from 1200 to the present, and observed a repeated pattern, roughly 200 years in duration, of exponentially rising prices punctuated by serious disasters...like the plagues that reduced Europe's population by roughly 30%. The disasters are generally followed by a period of relatively flat prices that, over time, return to exponential increase. The most recent punctuation point was centered around Napoleon's wars...(very) roughly 200 years ago.
Part of Fischer's thesis is that events (such as a cold spell) that might have been tolerated under the less stressful conditions (when prices were not rising), can produce catastrophic results during times of stress (rising prices put nutritional stress on poorer people, making them more susceptible to plague, which then spills over into the general population).
Your comment about "little slack in the system," and "big commodity price moves" reminded me of Fischer's work.
I recall reading a year or two ago that poor Indians get a large fraction of their daily calories from oils. I'd imagine that most of the rest come from cereals.
ReplyDeleteWhile oil and cereal prices may not yet have risen quite as high as in '08, they'll still be putting a lot of stress on millions of poor people in poor countries.
In this case I'd kind of prefer that we don't equalize supply and demand by reducing effective demand - i.e., the number of people who can afford food.
Well,
ReplyDeleteI think it is certain that climate change will not add to food security. Nor to any other security either.
But hey:
Fresh rioting breaks out in Algerian capital Algiers
Stuart, there are already riots in Algeria.
ReplyDeleteSwedish media is all I can give you right now but you can use google translate to get the gist of the story:
http://www.dn.se/nyheter/varlden/flera-doda-i-matkravaller-i-algeriet
Short wrapup: Several dead and hundreds of injured. The army is set in and people are bunkering up on basic foods. Prices has doubled within mere months. It's only set to increase as oil creeps up.
I think we are very, very close to a new peak this year. Things will get uglier than in 2008. Just as the DB Bank report stated, we're getting lower and lower every time on the threshold to when oil prices causes serious crisis.
For food, it seems to be at 90 dollars already.
I did read Fischer's book "the Great Wave" and found it mostly insightful. He links themes of climate change, overpopulation, declining available resources into quite a good book. I need to reread again but I did remember that he minimized the effects of currency debasement and its contributions to inflation. He thought that overpopulation and competition came first and that government meddling of the currency would exacerbate, but not cause the waves of inflations of eras past.
ReplyDelete