Agricultural Inflation

From the Financial Times today:


Commodities surge set to raise food prices

By Javier Blas and Chris Flood in London and Adam Jones in Paris

Published: August 8 2007 18:39 | Last updated: August 8 2007 18:39

Consumers are facing higher food prices as the cost of agricultural commodities surges on what the industry describes as a ‘perfect storm’ of tight supplies and robust demand.

The price increases come as manufacturers begin to pass on to consumers higher wholesale agricultural commodities costs following several months of warnings.

Chicago wheat rose on Wednesday to an 11-year high of $6.71 a bushel while European milling wheat rose in Paris to €218.75 a tonne, the highest since the wheat futures contract was launched 1998. European milk prices have reached about €5,500 a tonne, an 86 per cent increase since January. In the past five years, milk prices have risen almost four-fold.

Corn, barley, soyabean, coffee and cocoa prices are well above their averages of the past five years. Meat and poultry prices are also increasing, traders said.

Gregg Engles, chief executive of Dean, the largest US dairy company, said: “It feels like a perfect storm and it is not over.” Food companies were facing “the most stubbornly inflationary dairy markets in history”.

Danone, the world’s biggest manufacturer of fresh dairy products, began to raise prices last month to cope with the higher cost of milk and other raw materials. Nestle, Unilever and Cadbury Schweppes are among others to have lifted prices. Antoine Giscard d’Estaing, the French group’s chief financial officer, said then that consumers would probably see prices rise in the shops. Panic buying by some food-importing countries is now also underpinning prices, particularly on the cereals market, traders said.

Middle East and North African countries, such as Morocco and Egypt, which are dependent on wheat imports, have rushed to boost their stockpiles.

Gavin Maquire of Iowa Grain in Chicago said markets were seeing “near-panic” buying by import-dependent nations.

The sharp increases in the cost of food, particularly milk and cheese, has reignited debate in Europe about the 2003 reform of the common agriculture policy, which cut support to farmers. Some French politicians, among others, say this contributed to reduced supplies and the recent price rises.

However, analysts said the bulk of the price increases was the result of rising demand from newly industrialised countries such as China, which are consuming more high-protein foodstuffs such as meat and dairy products, and tight supplies after crops were hit by adverse weather in Australia, the Black Sea basin and Europe.

The biofuel industry’s growing cereal consumption is also pushing up prices.