Food costs likely to touch record highs

Accelerating inflation across the world, shrinking stockpiles to blame

Global food prices may rise 4.4 per cent to a record by the end of the year, driven by demand for meat, oilseeds and grains used to make ethanol, adding to costs that mean inflation is accelerating from the US to China.

The United Nations’ Food Price Index may climb to 240 points from 229.84 last month, said William Adams, a fund manager at Zurich-based Resilience AG, which has $22.2 million of assets. Global corn stockpiles are shrinking the most in seven years, inventories of nine edible oils will drop to the lowest since 1974 and US beef stocks will be the smallest since 1999, the US Department of Agriculture (USDA) estimates. “The stockpiles are being severely depleted,” said Adams, who correctly forecast gains in heating oil and gasoline prices last year. “Eventually it gets to the consumer. The US government isn’t subsidising pork chops like it is ethanol.”

The cost of living in the US rose at its fastest pace since December 2009 in the 12 months ended in March. Chinese consumer prices rose last month by the most since 2008. The People’s Bank of China raised borrowing costs four times since October and the European Central Bank increased rates on April 7 for the first time since 2008. World Bank President Robert Zoellick said April 16 that the world is “one shock away” from a crisis in food supply and prices.

Price Report
The UN’s food-price index, which covers 55 commodities, reached an all-time high of 236.8 points in February, before dropping by about three per cent in March. The next report is scheduled for May 5.

Costlier food contributed to riots across northern Africa and West Asia that toppled leaders in Egypt and Tunisia. It also drove 44 million people into poverty in the past year and another 10 million may join them should the UN index rise another 10 per cent, the World Bank said April 16. Consumers should get used to paying more because farmers will take years to expand production enough to meet demand, the International Monetary Fund said in a first-quarter report.

Wheat traded on the Chicago Board of Trade, a global benchmark, has jumped 75 per cent in the past 12 months.