Thursday, January 6, 2011
Commenter Benno points to news items that food prices are at new highs. Sure enough, a check at the web site of the UN Food and Agriculture Organization reveals that, whatever the prospects of another oil price shock, another food price shock is well under way. The data is above, and you can see that the December 2010 reading is just above the peak in 2008.
A couple of caveats are worth noting. First, as far as I can tell - the documentation at the FAO website is unclear - this index is not inflation adjusted. That would have essentially no effect on the difference between the two peaks, since there's basically been no net inflation between mid 2008 and late 2010. But it would make the peaks look less dramatic relative to the earlier history of the series.
More importantly, this is an index of food price commodities - the price of bulk hogs, wheat, chickens, butter, etc. The index is formed by export weighting the price of all these different commodities. However, few people eat a diet consisting mainly of internationally traded food commodities. In developed countries, people eat mainly processed foods in which the cost of the raw materials are only a small part of the overall cost of the food on the supermarket shelf. In rural parts of poor countries, a lot of the diet is coming from subsistence farming that is not economically well connected to international food markets.
To illustrate the first of these issues, look at the US Consumer Price Index for food and beverages:
Probably the people most exposed to food commodity prices are poor consumers in developing country cities, as well as recipients of food aid. I would expect social unrest to show up there first.