Food for Thought, But for Higher Prices

This week, the CRB BLS Spot Index exceeded 2008 record high levels.  The foodstuffs sub-index also exceeded 2008 record highs.  Both indices exceeded the previous highs by approximately 7%. 

Leading up to the index-highs of this week, food policy experts have warned of serious consequences resulting from food inflation, particularly if countries respond with counterproductive policies as has been the case since 2008.   The 2008 food crisis triggered riots in Egypt, Cameroon, and Haiti. Already, this year, food price inflation has lead to violent riots in Algeria, Tunisia, Morocco, Yemen, and Jordan. 

Inflationary monetary policy, such as last November’s QEII announced by the Fed, has, definitely, been a factor in commodity inflation.  Other factors contributing to food price inflation include:  

• Russian Wheat – Drought damaged the Russian wheat crop in the summer of 2010.
• Canadian Grains – Too much rain, during the spring and summer of 2010, in the Prairie Provinces, led to lower quality crops and decreased output.
• U.S. Crops – The U.S crop report estimates that corn and soy bean output will be lower than expected this year.  Also, record cold weather has caused damage to crops, estimated to exceed $370 million.
• Australian Floods – Massive flooding in Australia has damaged many key crops, leading to substantially increased prices have.
• Brazilian Floods – Flooding and mudslides have damaged crops.

None of this is good news for consumers, who saw food price increases of more than 10% in 2010 and will likely seem the same increases in 2011.  Managing the family budget is food for thought, but, nowadays, it is  for decidedly higher prices.