Food Riots Next? FAO Says Food Prices Surpass Record Highs Seen During 2007-2008 Bubble
The last time food prices hit ridiculous levels, the immediate outcome was global food riots in places such as Haiti and Bangladesh. Which is why distributors of riot equipment in the world's poorest countries may be in for a bumper crop as the Food and Agriculture Organization has just announced that world food prices have just surpassed the previous record last seen in 2007-2008. But it's ok: according to the centrally planning Chairman it's all good, and the inflation is really just in our heads. After all, courtesy of the recent spike in mortgage rates, home prices now have about 10% to drop, meaning even less equity will be extracted from already substantially depressed food prices.
From the FT article, which we are confident Ben Bernanke will never read:
Food prices hit a record high last month, surpassing the levels seen during the 2007-08 crisis, the UN’s Food and Agricultural Organisation said on Wednesday.
The Rome-based organisation said the increase did not constitute a crisis. But Abdolreza Abbassian, senior economist at the FAO, acknowledged that the situation was “alarming”. He added: “It will be foolish to assume this is the peak.”
The jump will increase fears about the repetition of the crisis of 2007-2008. However, poor countries have not so far seen the wave of food riots that rocked countries such as Haiti and Bangladesh two years ago, when prices of agricultural commodities jumped.
The increase in food costs will also hit developed economies, with companies from McDonald's to Kraft raising retail prices.
Higher food prices are also boosting overall inflation, which is above the preferred targets of central banks in Europe.
The FAO said its food price index, a basket tracking the wholesale cost of commodities such as wheat, corn, rice, oilseeds, dairy products, sugar and meats, jumped last month of 214.7 points – up almost 4.2 per cent from November.
The FAO food index is at its highest since the measure was first calculated in 1990. During the 2007-08 food crisis, the index reached a peak of 213.5 in June 2008.
It gets better:
However, the cost of the other critical staple, wheat, is now rising fast on the back of poor harvests.
“This is a high prices situation,” said Mr Abbassian, although he pointed to the fact the costs of cereals – and particularly rice – were below the peaks set in 2007-08. “Rice and wheat are, from a global food security perspective, the critical agricultural commodities, not sugar, oilseeds or meat,” he said.
The increasing costs of sugar, whose price recently hit a 30-year high, oilseeds and meat are the main reason behind the rise in the FAO food index.
The rise of commodity prices makes it likely that the global food import bill will hit a record high in 2011, after topping $1,000bn last year for only the second time. In November, the FAO raised its 2010 forecast to $1,026bn, up almost 15 per cent from 2009 and within a whisker of a record high of $1,031bn set in 2008 during the food crisis.
Agricultural commodities prices have surged following a series of crop failures caused by bad weather. The situation was aggravated when top producers such as Russia and Ukraine imposed export restrictions, prompting importers in the Middle East and North Africa to hoard supplies.
As Zero Hedge predicted some time in October, the next bubble will be in the 3Rs: Rare Earths, Rubber and Rice. Real Earths have come (and maybe gone). Rubber is coming. Rice is now here.