Monday, July 16, 2007

Food Price Rise Accelerates

Those of you following this Blog for some time know how much I believe oil prices and availability effects food prices and availability. That effect is starting to become quite apparent to consumers, and now, even to wealthy bankers. The following is from’s front page:

July 16 (Bloomberg) -- Rising prices for food, from yogurt in the U.S. to steak in South Africa, are causing heartburn at the world's most powerful central banks.

The fastest increase in food-commodity prices in at least a decade has already led monetary authorities in England, Mexico, Chile and South Africa to lift borrowing costs. It is also sowing doubts about the U.S. Federal Reserve's focus on core inflation, which excludes food and energy, and about China's gradual approach to tightening credit.

As Fed Chairman Ben S. Bernanke prepares to deliver his semiannual report to Congress this week, central-bank officials worldwide are anxious that climbing costs may trigger consumer concerns about faster inflation. To keep them from being self- fulfilling, some of the biggest economies might have to push interest rates higher.

An unprecedented surge in global demand is behind the 23 percent rise in food prices that the International Monetary Fund recorded during the last 18 months. ``We haven't seen anything on this scale before,'' says Martin von Lampe, an agricultural economist in Paris at the Organization for Economic Cooperation and Development.

Global Inventories

The U.S. Department of Agriculture's estimate for global inventories of grain are at the lowest level in 30 years in terms of days of consumption, says Carl Weinberg, chief economist for High Frequency Economics in Valhalla, New York. – Bloomberg News

I find it rather frightening that central banks believe they should try to control food prices through tighter monetary policy, without taking our energy predicament into consideration. It is my opinion that this is further denial of our energy situation by the political establishment. After all, tighter policy would slow the economy - food production included. Didn't they get the memo about our grain inventories? (I can just see Bernake reporting to the President: "I contained the inflation problem sir, with a judicious round of rate increases, and the only negative effect was a lack of food!" Good work, old boy!)

While it is true that a central bank engineered economic slow down or recession would likely suppress the price of food and energy, at least in the short term, it is hard to argue that this is the best strategy to pursue as it relates to food. There has been no public mention of a study of energy and its effects on our food supply by the federal government in spite of a great deal of material written on the subject and very much available to our political and economic leaders.

One might rail against my position on energy’s effects on agriculture, but it is hard to argue with a 23% increase in the price of food in the past 18 months. Further, the fact that my assertions regarding alarmingly low grain inventories are now breaking into the mainstream media should bring peoples view of our circumstance from the surreal to the very real. If my assertions are correct, this is only the beginning of a sustained and painful escalation in the price of food - and a decline in food availability.

Yours for a better world,

Mentatt (at)

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