What is Food Inflation

8/8/2019 What is Food Inflation

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What is Food Inflation?

Food Inflation is the rise in the general level

of prices of food and other agriculturalproducts in an economy over a period of

time.

It is measured by the Consumer Price Index

(CPI).


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Effect of Food Inflation

0

5

10

15

20

25

0 0.5 1 1.5 2 2.5

Y-Values

Y-Values


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Rise in Food Prices

Countries majorly affected by Food Inflation -

China

Russia

India

Chile

Latin America

Venezuela

Haiti


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Continued

Ripple effect due to high prices.

Inflation increases. It also leads to riots, political instability and

increases the worries to feed the poorest in

the country. Shortage in supply


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Some Interesting Facts

FAO price index 9% in 2006 and climbed upby 23% in 2007.

World Bank food index increased by 75% since2000.

IMF commodity food price index went up by10.5% in 2006, 27% in 2007 and 63% in first 3

months of 2008. WFP aims to feed 73mn people this year, willhave to reduce the number of people it can help.


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Factors resulting in increase of

food price

The Supply Side

The Demand Side


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The Supply Side

Supply side have played a

major role in increase in

food prices.


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Factors affecting the supplyImposition of export controls by exportingcountries.

Transportation cost.

Stretched shipping capacity and portcongestion have pushed up shipping cost.

Sea transport charges have increased due tohigher oil prices as well as trading of bulkcommodities like iron, other ores, grains, coaletc.

Freight rates have gone high considerably.

Increased fuel cost.


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Continued

Rise in petroleum price.

It has increased the input cost of agricultural

commodity. It has also increased transportation cost.

Fertilizer prices have increased by 150 percent

in past years.


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Continued

To deal with rise in petroleum prices &

growing concern for environmental issues

have lead a boost to biofuel sectors.

Biofuel sectors have great demand of

agricultural commodities like maize, sugarcane

, oilseeds, palm oil etc.


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Examples

In 2007, US used 20% of its maize production forbiofuel.

Brazil used 50% of its sugarcane production for

biofuel. EU used 68% of its vegetable oil production for

biofuel.

USAs corn crop production is now used to brewethanol for motor fuel, & as farmers have plantedmore corn they have affected soya beanproduction(resulting shortage of cooking oil).


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The demand side

Demand plays a very

Important role in increasing prices

Of commodities

India and china have a huge demand for agri

products leading to rise in prices.


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Factors affecting the demand

Development and standard of living

Shift from agri products to

meat, diary, seafood, edible oils

Commodities ,a good investment option

as the stock markets have failed.


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Continued

Entry of new players in the market to trade on

commodities leading to scarcity. Fall in dollar prices leading to cheaper

imports.


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Conclusion

Rise in demand

Growing population

Expected supply shortfall Exporting

Falling stock levels

Biofuel boom


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Control Measures

Grow more crops More production of high

priced crops In expectation of better earning

Will lead to increase in supply and in turn

push prices down.


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Prediction

In absence of new technologies, the USA, Canada

and EU would require to replace the fuel

consumption with biofuels which would result in

usage of 30-70% of current crop production area.

Governments have responded with more price

controls in export bans, such measures would

help to curb inflation and avoid social unrest. Butin long run would reduce the incentives of

farmers.


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Our Inference

Rising food prices will be continued

Limited Availability of land

Increasing population Increase in income of rural people

Documents

What is Food Inflation