As Food Prices Hover at Historic Highs, Extreme Weather and Asian Demand are Poised to Boost Prices Even Higher

After peaking in February, food prices have stayed at historic highs.

Food prices are climbing back to historic levels, the UN Food and Agriculture Organisation (FAO) reports.  Prices increased by 1.3% in June due to worries over bad sugar harvests from “a spell of two months without rain.”

Food prices are poised to increase:

Goldman Sachs said it expected further increases in a wide range of commodity prices this year and into 2012 – in food, as well as energy and metals – on the back of strong demand from Asia.

However, Goldman is confident that now is a good time to get back into commodities. “We expect this [Asian] demand growth will be sufficient to tighten key commodity markets over the next six to 12 months, particularly for those markets where supply constraints will become binding even on slower economic growth,” said Jeffrey Currie, Goldman’s global head of commodities research.

In other words, expect more food shortages and high prices. This is good for investors, but bad for the world’s poorest people. The World Bank estimates that these record highs are pushing tens of millions more people into poverty:

In addition to poor people being less able to afford a good meal, more people are now poor because of higher food prices. Since last June, an additional 44 million people became extremely poor, living under US$1.25 a day. And we now calculate that a further 10% increase in global prices could drive an additional 10 million people to poverty, while a 30% food price hike could lead to 34 million more poor.

Food prices having been spiking in an upward trend since 2008.  Around the world, crops are failing as extreme weather events like droughts and floods threaten farmers, many of whom are in the poorest countries (see NY Times Bombshell: “The latest scientific research suggests” climate change is “helping to destabilize the food system”).

The most striking case of climate change’s destructive capability comes from Ethiopia and surrounding nations, where millions are struggling to survive as a devastating two-year drought peaks.

What’s more, torrential rains and floods in China have caused prices to surge regionally and globally. Vegetable production is down by 20% and prices in cities like Hangzhou have risen by as much as 40 percent.

Growing global wealth, especially in China in India, is driving demand for more luxury foods, contributing to ballooning prices. But FAO warns that “potentially catastrophic” climate change will be the dominant driver of prices into the future.

– Tyce Herrman

Related Post:

• Jeremy Grantham must-read, “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever”