The Food Misery Index
A couple of years ago, food prices became a hot button issue in international affairs. Food riots were seen in several countries in the Global South, as those with the lowest incomes were most susceptible to substantial rises in prices of basic products such as wheat and rice.
While food prices did subside somewhat since their peak in 2008, it appears that once again food prices are on the rise. Indeed, according to the World Bank, food prices have increased 29% in the past year. The United Nations is reporting that food prices are actually higher now than they were in 2008. While there has not been the same global unrest related to food prices as was seen in previous years, this undoubtedly cannot be too far away.
I learned about the rise in food prices through the business section of the Globe and Mail. Naturally, there the focus was on the economic impact of rising food prices. The article suggested that a rise in food prices hurts economic growth and would lead to increases in inflation and interest rates. In other words, a rise in food prices would have broad and substantive economic ripple effects for all of society. The bank UBS has even developed a ‘food misery index’ indicating the affect of high food prices on various parts of the globe. Wealthier nations are affected the least (since we spend a smaller percentage of our income on food). Comparatively developing nations and eastern Europe are the most affected as people in these countries spend much larger proportions of their income on food.
This is all fine and good, and is indicative of the important role that food plays in our society and our economy. But beyond rising interest rates or hits to economic growth, a rise in food prices has significant consequences for people, particularly those with low incomes. An significant increase in the food price in sub-Saharan Africa, let’s say, has implications for people already spending 80% of their income on food. This can lead to unrest and unease, and even political conflict or violence. There are now warnings of food-related unrest in several Latin American and African countries.
While it is highly unlikely that riots will break out in Canada over the cost of bread any time soon, Canada too is affected. In my previous blog, I indicated that an increasing number of Canadians are using food banks. As food prices increase, this will only exasperate the problem. Many people will also be forced to turn to less healthy food options. For example, during the spike in food prices in 2007-2008, the price of food in Manitoba stores rose by 10.6%, several times higher than the average rate of inflation. Interestingly, the cost of nutritious foods experienced the most significant price increases. The cost of fresh vegetables rose by a staggering 33.6% in one year. Other staples also experienced price increases, including fresh fruits (12.7%), bakery products (13.5%), and fresh or frozen meat (14.4%). For those with middle or upper class incomes, these increases were more likely an inconvenience than a serious budgetary crisis. But for those with lower incomes, these kind of price shifts can seriously impact decision making processes in regard to what foods to consume.
Some would argue that the increase in food prices is not all bad news. Surely farmers will gain – and we all know how farming has struggled over the past several years. But in comparison to every other player in the food chain, the farmer likely stands to benefit the least. They earn a small portion of the grocery store dollar – as low as 4% for wheat products. And besides, research has shown that while farm prices have gone up overall, farm input costs have increased at least as quickly, often actually outstripping whatever gains were made. So while farmers are making more, they also have to pay more. There might be some good news here, but an increase in prices doesn’t entirely change farm economics.
It appears that high food prices are to be a common occurrence. There are many reasons for this, including commodity speculation, a decrease in the availability of arable land, and increasing world population. Other pressures, such as conversion of food-growing land to biofuel production and the world’s increased meat consumption also contribute to the high prices. This provides yet another reason for public policy makers to consider the impact of food in decision making. Failing to do so, can have serious consequences, especially for those with low incomes both here and abroad.