We are so used to our ultra-competitive supermarket sector keeping down prices that it comes as rather a shock to discover that the same item we bought a few weeks ago has become more expensive. But the shock value is beginning to wear off. Food prices are now rising at 6 per cent a year, twice as quickly as the general cost of living. And it is not just in the UK that we are witnessing this trend. In India the overall food price index is 10 per cent higher than last year. In China, prices are up 20 per cent for some staples. A similar inflationary trend can be discerned in America.
The immediate reason for this is that global commodity prices are rising. Earlier this month, wheat prices reached their highest level in 10 years. Maize prices have doubled over the past year. Rice prices are rising too. This is being passed on to the price of other foodstuffs such as meat and eggs, as these commodities are used for animal feed.
But what is pushing up global commodity prices? Some have pointed to several bad harvests and adverse weather. Others have blamed a spike in farmers' fuel prices as a result of instability in the Middle East. But it is also likely that a substantial global demand shift is beginning to affect prices. There is a higher demand for cereals from China and India. India has become a net importer of wheat for the first time since 1975. China is expected to become a net importer of maize by 2008.
Another factor is the increasing use of food crops as a source of energy. The use of maize and sugar cane for biofuels has pushed up prices. Some 16 per cent of the US grain harvest was used to produce bioethanol last year, following President Bush's pledge to expand the US's consumption of biofuels fivefold. It could be just the beginning. If the fuel value of grain begins to exceed its food value, the market could move it into the energy economy. Thus, as the price of oil climbs, so will that of food.
All good news for farmers and the food industry. But it is bad for those of us who shop for groceries. Rising global prices will hit poor countries hardest. In Mexico, where the price of tortillas has risen rapidly, tens of thousands have joined street protests. Other poor countries will feel similar pressures if this goes on.
This does not discredit the investment by governments in biofuels as an alternative to highly polluting petroleum. But it suggests that the US has not adequately considered the economic or social implications of its rapid switch to maize as an energy source. And it is yet another example of the folly of agricultural subsidies. US grain producers are so pumped up by subsidies that America has become a leading exporter. The US ships more grain than Canada, Australia and Argentina combined. So what happens to this single producer has a profound effect on world prices. We are feeling the malign results.
Greater trade liberalisation should help to bring prices down in the long term. It is worth remembering that the high food prices of the 1840s came to an end with the abolition of the protectionist Corn Laws in Britain. We should stop paying European and American farmers to do what African and Latin American nations could do much more cost effectively.
Another way to bring down food prices would be to bioengineer crops specifically to be used for fuel to minimise the effect on the food market. Some interesting work is being done in this area at the John Innes Centre at the University of East Anglia. But it will take time. And in the meantime there is no simple solution to the overall increase in demand for food in Asia. It is not an easy prognosis to swallow, but it seems we have little choice but to accept that the long era of cheap food is coming to an end.Reuse content