Inflation is on the rise again. The Office for National Statistics reported yesterday that the Consumer Prices Index had risen to 2.2 per cent. Meanwhile, the Retail Prices Index, which most regard as the more accurate measure of the cost of living, has breached 4 per cent. The Bank of England reduced its base rate last week, but inflationary pressures make it harder for it to offer more help to borrowers by cutting rates substantially further.
According to the ONS, this week's rise is attributable to soaring oil and food bills. We know all about oil, but it is becoming clear that food is potentially just as serious a driver of inflation in the 21st century. The United Nations' food price index rose by about 40 per cent in 2007, following a 9 per cent increase the year before. Bread prices rose by 7.5 per cent last year, while milk, cheese and eggs went up by 15 per cent. So what lies behind this "agflation"? The high price of energy is certainly a contributory factor. Crops need fertilisers to grow and natural gas is heavily involved in their production. High fuel prices also mean that it costs more to get the food to market, which is reflected in its retail price. Greater demand for meat and dairy products from the growing economies of China and India, as their citizens adopt a more Western diet, is also a major factor.
There is not a huge amount that policy-makers can do about these two trends. But the rush to biofuels by the European Union and America is making matters much worse. Planting crops for fuel takes land out of food production. One third of the US maize crop was used to make ethanol last year, thanks to massive subsidies from the Bush administration. It would be one thing if this was good for the environment, but there seems to be little to be gained from biofuels in this respect. The most recent studies suggest that their benefits have been vastly exaggerated.
High food prices are an inflationary threat to the developed world, but elsewhere their significance is far greater. Thousands of people marched in Mexico City last year to protest against the increase in the price of corn tortillas, which have soared by 400 per cent. The situation is even worse in low-income Asian and African nations, where grains make up about 60 per cent of the diet. According to the UN, the cost of imported foodstuffs to the world's poorest countries has risen by 25 per cent. This is squeezing food-aid budgets and putting millions at greater risk of malnutrition.
The problem is likely to get worse, rather than better. The US plans to double production of biofuels by 2022 and the EU has a target of getting 10 per cent of fuel from plants by the end of the next decade. In its recent assessment of farming trends, the UN Food and Agriculture Organisation predicted that food prices would rise significantly over the next decade. The UN also expects developing countries to consume about 30 per cent more beef, 50 per cent more pork and 25 per cent more poultry by 2016. Further down the line, significant disruption to agriculture is expected to be inflicted by climate change. Indeed, this may already be occurring. The failure of Australia's wheat harvest last year was likely to have been a direct consequence of global warming.
To some extent, higher food prices are inevitable. Nothing is likely to prevent Chinese and Indians diversifying their diet, for instance. But serious action must be taken to protect the most vulnerable on the planet from rising food prices. And, more generally, it is clear that global leaders and multilateral organisations need to become a good deal more adept in making provision for rising global food demand. The days of cheap food are over – and we had all better start getting used to it.Reuse content