A dizzying cycle

For anyone shopping in grocery stores it is obvious that price increases over the past year have been extraordinary. It is clear that we are in the midst of a dizzying cycle. Wheat prices have more than doubled in two years, so bread prices have gone through the roof. Corn, milk, eggs, you name it, are at or near a peak in nominal terms.

Even in real terms, that is adjusted for inflation, prices have risen by 75 per cent since 2005. This is a complete reversal of the post-war years.

What is startling is that the food-price index compiled by The Economist is higher today than at any time since it was created in 1845. Thus, the increases surpass the food-price inflation triggered by the Crimean War, the U.S. Civil War, and the First and Second World Wars.

Hitherto, for as long as most people can remember, food has been getting cheaper, and consequently, the farming industry has been in a decline, unprofitable for more than an entire generation. Food prices on world markets had declined, taking into account inflation, by three-quarters over the past three decades.

Nowadays, no doubt our farmers will meet higher prices with investment and more production, but there are limiting factors. Costs are soaring for fuel, pesticides, and fertilizer.

Part of the explanation for the end of cheap food can be found in the growing wealth and appetite for meat in the developing countries, notably China and other nations in the Pacific region.

There are other elements involved. One is the absurd, almost reckless subsidy provided by the United States for corn-based ethanol. The cost of producing that product exceeds the output achieved. 

The so-called biofuels will take one-third of that nation’s record harvest. That affects food markets directly. For example, to fill up a sports utility vehicle with ethanol will use enough corn to feed a person for one year. Too, some farmers have switched to corn from other crops, leading to a fall in the world’s overall grain stocks.

For years, subsidies have been offered to grain producers, particularly in the United States, which last year allocated $43-billion in handouts; the European Union granted more than $140-billion to farmers there.

With farm-gate prices so much higher, subsidies can and will be cut back. The higher prices make it possible to reduce subsidies without really crippling farmers’ incomes or costing votes. Then at some point the U.S. policy of subsidizing corn-based ethanol must come to an end. Sugar-based ethanol, imported from Brazil, makes more sense, but currently the U. S. imposes a tariff on such imports.

Farmers’ markets are expanding throughout Canada, thereby eliminating the middlemen for many items. Finally, the emerging economies of Asia and Africa will enter a period of slower growth, so their demand for food will not escalate at the present rate.

It appears then that consumers can expect some relief from the food-price spiral.



Bruce Whitestone