What is Food Inflation?

 Food Inflation is the rise in the general

level of prices of food and other agricultural
products in an economy over a period of
time.
 It is measured by the Consumer Price Index
(CPI).
 Effect of Food Inflation
Y-Values
25

20

15
Y-Values

10

0
0.8 1 1.2 1.4 1.6 1.8 2 2.2 2.4
 Rise in Food Prices
 Countries majorly affected by Food Inflation -
 China
 Russia
 India
 Chile
 Latin America
 Venezuela
 Haiti
 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
 Some Interesting Facts
 FAO price index – 9% in 2006 and climbed up by
23% in 2007.
 World Bank food index increased by 75% since
2000.
 IMF commodity food price index – went up by
10.5% in 2006, 27% in 2007 and 63% in first 3
months of 2008.
 WFP – aims to feed 73mn people this year, will
have to reduce the number of people it can help.
Factors resulting in increase of
food price
 The Supply Side
 The Demand Side
 The Supply Side
Supply side have played
a major role in increase in
food prices.
Factors affecting the supply
Imposition of export controls by exporting
countries.
Transportation cost.
Stretched shipping capacity and port congestion
have pushed up shipping cost.
Sea transport charges have increased due to higher
oil prices as well as trading of bulk commodities like
iron, other ores, grains, coal etc.
Freight rates have gone high considerably.
Increased fuel cost.
 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.
 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.
 Examples
In 2007, US used 20% of its maize production for
biofuel.
Brazil used 50% of its sugarcane production for
biofuel.
EU used 68% of its vegetable oil production for
biofuel.
USA’s corn crop production is now used to brew
ethanol for motor fuel, & as farmers have planted
more corn they have affected soya bean
production(resulting shortage of cooking oil).
 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.
 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.
 Continued…

 Entry of new players in the market to trade

on commodities leading to scarcity.
Fall in dollar prices leading to cheaper
imports.
 Conclusion
 Rise in demand
 Growing population
 Expected supply shortfall
 Exporting
 Falling stock levels
 Biofuel boom
 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.
 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. But
in long run would reduce the incentives of
farmers.
 Our Inference
• Rising food prices will be continued
– Limited Availability of land
– Increasing population
– Increase in income of rural people