For quite some time now, there has been a scare on the rising food price. Investors have been troubled by the global food inflation. With the passage of time, the food issue seems to be looming bigger.
In the past few months food prices in many countries has pushed up headline inflation. It’s one of the causes attributed to the rising inflation in India (though it seems to have quieted now). Key headline food items are still rising aggressively in China, with pork and egg prices up anywhere from 30% to 50% in the months of May and June alone. Are we really going to face a crunch in food? Is there a shortage of grains? Not really.
Historically global agricultural shocks have been temporary and unevenly divided among diverse product categories. However as China becomes more dependant on imports wont it result the world economy entering an agricultural “super-cycle”, with large, sustained and across-the-board price increases just as we saw with oil and minerals over the past five years, and this would have a much bigger impact on CPI indices everywhere. Not really.
Unlike fuels and minerals, China’s food imports are starting a very low base, both as a share of overall global trade as well as total domestic demand. Even more important, there’s no sign that China is even starting the process. Of course food prices have been rising sharply in the mainland over the past few months, but much of the action here has been due to temporary spikes in specific product categories.
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