February 07, 2011

From McDonald's Burgers in US to Chilis in Indonesia

I'm in in front of the McDonald's Times Square, NY
From McDonald’s burgers in the United States to sugar in Bolivia and chilis in Indonesia, food prices across the globe are soaring. But consumers and governments should brace themselves for even higher prices, experts warn, as demand in populous emerging economies will put pressure on supplies for years to come.

A “perfect storm” of bad weather, rapid growth in emerging economies — with people eating more higher-value, resource-intense food — and low interest rates has sent prices for a broad range of farm and non-farm commodities climbing often at double-digit rates: from wheat to corn, cotton to rubber, and oil to boot.

And while it resembles the sharp spike in food and oil prices of 2007-2008, analysts say the current trend is less speculative in nature and not likely to end with a price collapse, as it did two years ago.
Indonesian Restaurant in Times Square, NYC
“What is going on now is more broadbased... It’s not led by grains.” And it’s widespread, and feeding into political worries, not just in the Middle East.

In Indonesia, where even the price of chilis has soared, the government suspended import duties on key food items after inflation hit an annual rate of seven percent in January. In Bolivia, sugar is being rationed despite a 64 percent price hike.

In the United States, much higher meat prices are forcing restaurants from fancy steak houses to McDonald’s to hike their prices, even though the pocketbooks of consumers remain tight. On Thursday, the UN Food and Agriculture Organization said food prices have reached their highest level since it began measuring them in 1990, and pointed to the political problems that can spark.

There is little relief in sight, say experts.
American roast chicken without chili
“What’s interesting is that even commodities that aren’t heavily traded are rising in price. ... That suggests this is fundamental, not speculators,”

The 2008 commodity spike was only a handful of food grains plus oil, and driven in large part by political decisions amounting to hoarding and heavy trader speculation. This year the problem is more fundamental: prices are being driven by growing demand from huge emerging economies like China, India, Russia and Brazil that is unlikely to slacken until prices get much higher, say the analysts in one of famous company.

The World Bank’s Delgado said that supply shocks are exacerbating the price hikes: weather and policy moves that have cut grain supplies from Russia, Argentina and Australia, among others. But the trend is rooted in the fundamentals of soaring demand, say economists.

Balinese Betutu roast chicken with a ton of chili
“More and more people are moving up the scale of income, so they tend to have higher value food,”  'Nariman Behravesh, chief economist at IHS Global Insight'

There is not much relief on the horizon because of the time it takes farmers to expand acreage and production.

“It takes a long time, two to three years, for new supply to come on stream,”

“I think commodity prices are going to be trending higher.” Commodity traders are saying the same thing.

American steak, they dont use chiili or pepper into the food
Last week, the commodities specialist said that key items like corn, soybeans and wheat still face strong upward price pressure — with corn possibly going up another 20 percent from the current level of $6.60 a bushel before demand weakens.

“We see record tightness across the agriculture complex and believe that higher prices will be necessary to ration demand and incentivize acreage,”.

West Indonesian food, Rendang. its take a lot of chiliii
The problem is mainly a short-term one, more like 2008, and have limited economic impact overall. But policy-wise, he said governments don’t have many tools to bring down the cost of food and other commodities, especially if they are import-dependent. Aside from pushing up interest rates to slow growth.

“There’s not much central bankers can do about food prices.
Wall street, The U.S Stock Exchanges Financial district in NYC
Source : Jimmy Hitipeuw