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Don't Worry About Today's Retirees: Boomers Are Fine, (but Gen X…China, Egypt, Vietnam, and India, which represent about one-third of global rice exports, curbed sales this year, and Indonesia did so as well, Bloomberg News reported Monday. Grain and food demand is increasing at above-trend rates due to solid economic growth in emerging markets. These regions are experiencing expanding middle classes -- a factor that historically has almost always led to rising per capita food consumption in the country where the growth occurred.
As a result, the price of rice and other commodities has soared -- rice hit $21 per 100 pounds on Monday, Bloomberg News reported -- and governments may face increased social unrest, given the pivotal role rice plays in many developing nations.
Economist Glen Langan said the most immediate impact on markets will be higher prices for wheat, soybean, and corn -- and another round of price hikes for U.S. groceries that use those commodities. That's because rice has risen so much, developing-world citizens and businesses will look for cheaper substitutes, forcing up the price of those substitutes.
Higher food prices, everywhere
Longer-term, the increase in the price of rice serves as yet another data point concerning the ability of global food stuff/commodity producers to meet global demand in light of the food consumption boom in emerging markets. Initially, about two years ago, Langan thought the higher prices that draw more farmers into the market would be satisfactory to meet rising demand. But China and India et al's decision to curb export sales this year belie that thesis, Langan said. Further, despite a tripling of grain commodity prices in the past three years, demand continues to increase at above-trend rates, he said.
As a result, the possibility of social unrest is rising, Langan said, particularly in poorer developing nations like India and Mexico, if staple food prices do not moderate and/or public actions are not implemented to blunt their increase.
"Today's commodity problem is not like that old Soviet system case study where in the 1970s the Soviet Union could not import or produce enough bananas and the response from Soviet citizens was 'Well, then we do without bananas today. We'll eat apples instead,' " Langan said. "For billions of people rice is a staple food that's hard to substitute for."
In the developed world -- including the United States -- Langan said the immediate impact will be still higher prices at the grocery store, particularly for bread, cereal, and pasta, among other items. Previous grain-based price rises have already pinched Americans' food budgets. More pinches are ahead, Langan said.
"Crude oil is still the world's most important commodity, but it looks like food is campaigning to be a close second," he said.
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Reader Comments (Page 1 of 1)
4-07-2008 @ 8:12PM
william lindblad said...
Bloomberg is a day late and a dollar short - as the saying goes. Anyone that follows this area has been aware for at least 8 months. These countries have an emerging middle class and that is what is driving wheat. I don't know what is driving coffee, but that is on the way up too. Plan on paying more at starbucks. With all due respect to Mr. Langan, crude oil may the most expensive, but it is not the most precious. The most precious is fresh water and to that end their exists a fixed amount. With the world's population on a steady and rapid rise shortages are inevitable. They already exist in the U.S. - ask the mayor of Atlanta, Ga. This is a very serious problem at home. The Northwest aquifer is being depleted and that's the crop belt. California's main supply is from the Colorado via the Mulholland canal system. Without this water most of the Cal. growing areas go back to their original state - desert.
All the cereal crops have but one way to go - up.
I made a comment awhile back that the "victory garden" will once again be part of the suburban landscape and have little reason to doubt it. I just ordered a Lehman's catalog as I know enough to think about CYA.
4-08-2008 @ 1:16AM
B. Harrison said...
It's a new global economy out there and the USA has lost many of its historic economic advantages. That coupled with the current economic crisis is going to have a leveling effect on the USA in comparison to the other nations. George Bush started with the LARGEST BUDGETARY SURPLUS in American history; and look where he has plunged the nation with his unwarranted war, and false "economic boom". Our situation is a direct result of his polices and performance. The "Harvard MBA mentality" of only being concerned with the quarterly results has caught up with the USA. They've ripped the economic guts out of the USA.
4-08-2008 @ 3:31AM
Steve Cahill said...
Grain price rises pushing groceries up? That $5 box of Corn Flakes has only about $0.10 of corn-sourced raw materials, even at those elevated grain prices. Corn weighs 56lb/bu, and the price is hovering around $5.80/bu. Still a bargain - not so many months ago that would have been $0.04 worth of corn. Hard to be a farmer when your product sells cheaper than dirt.
Water availability issues? It falls from the sky fairly regularly, in the midwest where most USA corn and soybeans are raised; irrigation is used at the edge of the geographic production range but is not common for these crops. Not a primary issue, as long as the weather is stable.
4-08-2008 @ 6:53AM
al coholic said...
Not to worry. Since food and fuel products are not included in the inflation figures compiled by the government this increase will not count unless, of course, you happen to be in the market for these items.
Our government has brainwashed us into believing these items need to be excluded because of their volatility. Baloney! It's time to admit that food prices and fuel are headed in only one direction....up!
Warning...wage and price spiral dead ahead!
4-08-2008 @ 8:04AM
John said...
Main contributors to cost of cereal:
1. Sports & celebrity endorsements.
2. Executive salaries
3. Lavish corporate buildings
4. Corporate waste
5. Pension plans and bonuses.
$21 per 100 pounds of rice. A box of cereal weighs less then 1 lb which is 21 cents per box. A box of rice, 1 lb is 1.79 not 5 like cereal.
4-11-2008 @ 6:41PM
Duscany said...
Where do you buy 100 pounds of rice for $21? I bought a 20 pound sack of Thai Jasmine rice today for $11. That's about 55 cents per pound. I noticed the local Filipinio market, which usually has the cheapest prices around, is selling 50 pounds of Thai Jasmine for $35 or 70 cents per pound.
4-25-2008 @ 2:55PM
Aime Watts, Jr. said...
I noticed that ethanol production hasn't entered this discussion nor was it in the article. That is one of the primary reasons food prices are soaring - grain goes up, livestock feed goes up, meat costs more. It isn't only bread and cereals that are affected.
Fresh water continuously is refreshed, as one person commented, and Bush isn't responsible for everything - this price spiral didn't start until the democrats retook Congress after the '06 election. Gas was around $2 a gallon before that and food was relatively stable. (If we went to Iraq for oil, where is it?)
As long as ethanol is mixed with gasoline, food prices will continue to escalate. It takes more energy to make ethanol than what the ethanol produces, so gas prices will also continue to soar. Rising fuel prices also raises the cost of transporting food, so that has its impact, too.
Biofuel is not the answer, it is painfully the problem.