Monday, March 17, 2008

Food price recap: agflation in Ghana; underlying causes described

From Reuters:

Ghana's inflation rose to 13.2 percent in February from 12.8 percent in January, with higher food prices a major contributing factor, the Ghana Statistical Service said on Friday.

"Fish contributed the highest with 0.89 percentage point, followed by bread and cereals," Ebow Duncan, head of economy statistics in the GSS said ahead of a detailed announcement by the Central Bank's Monetary Policy Committee next week.

Prices for agricultural commodities have risen sharply in both developed and emerging markets in recent months, leaving many in the world's poorest regions like West Africa struggling to afford basic supplies such as rice and grains.

Duncan said cumulatively, food and non-alcoholic beverages contributed 2.85 percentage points, while non-food items accounted for 0.8 percent of the inflation rise in the West African state. Meat contributed 0.35 percent.

In its last report, the MPC said high crude oil prices, rising food prices and increases in utility tariffs were the underlying causes of rising inflation.

A special petroleum pricing body set up by the government is expected to announce fuel price increases on Sunday. This, analysts fear, may lead to further rise in inflation.

Why the high prices

(From the Guardian)

Much of the blame has been put on the transfer of land and grains to the production of biofuel. But its impact has been outweighed by the sharp growth in demand from a new middle class in China and India for meat and other foods, which were previously viewed as luxuries. “The fundamental cause is high income growth,” said Joachim von Braun, the head of the International Food Policy Research Institute “I estimate this is half the story. The biofuels is another 30%. Then there are weather-induced erratic changes which caused irritation in world food markets. These things have eaten into world levels of grain storage. “The lower the reserves, the more nervous the markets become, and the increased volatility is particularly detrimental to the poor who have small assets.”The impact of climate change will amplify that already dangerous volatility. Record flooding in west Africa, a prolonged drought in Australia and unusually severe snowstorms in China have all had an impact on food production.“The climate change factor is so far small but it is bound to get bigger,” Von Braun said. “That is the long-term worry and the markets are trying to internalise it.”

How long are prices likely to be high?

The US department for agriculture says the country’s wheat stocks are at their lowest for 50 years and demand will continue to exceed supply this year. There is potential to bring more land into production in countries such as Ukraine, but that could take time. And as all foodstuffs have risen sharply in price there is little incentive for farmers to switch from one crop to another.

What about the EU’s common agricultural policy?

High food prices certainly remove the need to subsidise farmers and so there is a chance, say experts, that badly needed reductions in CAP subsidies, which cost European taxpayers dearly, could now be within reach.

Are other commodity prices also rising?

Oil, metals and coal have seen their prices rise strongly as the global economy has expanded rapidly, driving up demand for almost everything, particularly from emerging economies such as China and India. Some economists think speculation may also play a part. Disappointed by the sub-prime collapse and falling property values in many countries, investors have piled money into commodities.

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