Rising Food Prices

In this country when food prices spike folks don’t riot, but that is not exactly the norm, in poorer countries were people spend a much larger percentage of their incomes on food, on sustenance, a spike in food prices can drive people into the streets to express their displeasure in a more dramatic fashion.

Wired Science has a great article on the subject of food price spikes, and the correlation to commodity speculation.  Essentially what the article, and a recent study argue is that the recent spikes in food prices has more to do with speculation than had been originally proposed.

The study claims, “Since 2007, global food prices have surged twice, each time rising by more than 50 percent in less than a year, putting people in poor countries at risk and sparking social unrest around the world. Economists have argued over what drove the surges: Maybe it was bad weather, or changing dietary habits, or changing farming practices, or even a change in how global food markets now work.

In earlier work Bar-Yam’s group used mathematical models to test links between food prices and proposed explanations for market behavior. They identified two culprits: replacing food crops with biofuel crops seemed to be driving food prices slowly upward, while commodity speculation — investors betting on food prices — appeared to cause the spikes.”

The article describes the governmental action that is required but unlikely to take place in a meaningful way, and concludes with a dire warning, “According to Bar-Yam, the model predicts another speculative surge by 2012′s end, with food prices rising above their 2011 peaks. “Unless they get speculators under control, eventually there’s going to be a big bubble,” he said. “It’s a countdown to a real problem.”

Sounds a lot like the tune that Nouriel Roubini was singing prior to the housing bubble collapse.

Will we take heed?

Doubtful. But if we have a real interest in addressing poverty, we’ll have to stabilize governments in the developing world, a task made much more complicated when food prices spike significantly.