On Thursday, February 3, the Food and Agriculture Organization of the United Nations (FAO) released its January 2011 FAO Food price Index. The index clearly shows the challenge faced by some of the world’s poorer countries, where food represents a larger percentage of disposable income.
The index is now at the highest level (both in real and nominal terms) since FAO started measuring food prices in 1990. The following chart shows these long-term index results:
The following chart shows the same data for 2007 to the present, but shows each month along the horizontal or x-axis. When reading the following chart, one can follow the December result for any year to the January data for the succeeding year. This chart shows the seasonal effect on food prices, but also shows the longer term rise in prices caused by world food demand outpacing food production increases.
In both of the above FAO charts, 2008 data is a short-term anomaly. The reasons for the food price spike in 2007 and 2008 continue to be debated, but are generally attributed to:
- Droughts in certain grain-producing nations
- Rising oil prices, which increased production costs, transportation and fertilizers
- Competing use of agriculture for biofuels
- Increasing demand in developing countries for more healthy and varied diets
FAO economist Abdolreza Abbassian commented on the price increases as follows:
The new figures clearly show that the upward pressure on world food prices is not abating, These high prices are likely to persist in the months to come. High food prices are of major concern especially for low-income food deficit countries that may face problems in financing food imports and for poor households which spend a large share of their income on food.”
Food price increases and other inflationary pressures are a root cause of the civil unrest amongst the world’s poor in countries such as Egypt, Algeria, Yemen, and Mozambique. Much of the press attention in the U.S. focuses on political reasons for the turmoil, but these worldwide price increases go far beyond the capabilities of any individual political leader.