September 23, 2008
Sharp Fluctuations in Prices Will Give Us All Plenty of Food for Thought
By Steve Dube
WEWERE always taught that the price of bread fuelled the French revolution - particularly when Queen Marie Antoinette, told that people could no longer afford it, replied: "Let them eat cake."
Now we are told that the era of cheap food is over - and the era of cheap money for those who already have vast amounts of it also seems to be at an end.
But we may be talking too soon.
The money-go-round manipulators are not done yet. And it looks as though we are entering an age of sharp and frequent price fluctuations rather than a classic slump.
In Hamburg the price of petrol at the pumps goes up and down from day to day without any apparent reason. The same might soon be true of food.
Franz Fischler, the former EU Agriculture & Rural Development Commissioner who introduced the reforms of the Common Agricultural Policy four years ago, told journalists attending an international conference last week that volatility rather than a simple upward or downward trend will characterise future prices.
Europe's main competitors in food production are South America and the United States, but Fischler drewattention to the Black Sea region, Ukraine, Moldova and Russia, where they are growing grain in vast quantities and the oligarchs are buying up hundreds of thousands of acres following three failed harvests in three years in Australia.
There is one problem. Storage facilities simply don't exist, and that means that prices will dip this autumn as these new producers dump their produce on the market.
Fischler said anxiety over food prices may be misplaced for other reasons. Current prices have already fallen from the heights reached in April this year. Wheat is already falling at around 130 euro a tonne.
The Organisation for Economic Co-operation & Development and the UN Food & Agriculture Organisation say there have been five price peaks since 1973. And the April peak was lower than 1973 when the first oil crisis hit the world economy and many economists forecast the end of the era of lower prices. They repeated the warning every time prices peaked - and got it wrong five times.
The OECD and the FAO say this year's peak is over and prices are going down - although the long term trend is expected to be upwards because of higher oil prices and a weak dollar.
With 30% of the US harvest already going into bio fuel production to keep cars on the road it means that the future for the food market as well as the money market is no longer as certain as it once looked.
Farmers of both food and finance face a fickle future, but - with any luck - it is still too soon for doom-mongers to forecast the end of the era for cheap food. Our supplies of bread - and cake - still seem safe.
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