The surge in food price inflation has been worldwide, that’s according to the World Bank
From Reuters.com
World food prices jumped 10 percent in July as drought parched crop lands in the United States and Eastern Europe, the World Bank said in a statement urging governments to shore up programs that protect their most vulnerable populations.
From June to July, corn and wheat prices rose by 25 percent each, soybean prices by 17 percent, and only rice prices went down, by 4 percent, the World Bank said on Thursday.
Overall, the World Bank's Food Price Index, which tracks the price of internationally traded food commodities, was 6 percent higher than in July of last year, and 1 percent over the previous peak of February 2011.
However, World Bank officials impliedly prescribes statist “know it all” solutions that may even may exacerbate on such shortages, (bold added)
"We cannot allow these historic price hikes to turn into a lifetime of perils as families take their children out of school and eat less nutritious food to compensate for the high prices," World Bank Group President Jim Yong Kim said. "Countries must strengthen their targeted programs to ease the pressure on the most vulnerable population, and implement the right policies."…
"However, negative factors -- such as exporters pursuing panic policies, a severe El Nino, disappointing Southern hemisphere crops, or strong increases in energy prices -- could cause significant further grain prices hikes such as those experienced four years ago," the bank said
Well in reality, drought has only served as a catalyst to the economic imbalances caused by different global policies such as ethanol or biofuel subsidies, still elevated agricultural tariffs despite WTO (see chart below), agricultural subsidies, price controls and most importantly central bank credit easing policies…
from CAPREFORM.EU
The good thing is that other world officials recognize that protectionism will only amplify food price inflation that may unravel into a crisis.
Again from the same Reuters article,
Separately, finance ministers from the 21-member Asia Pacific Economic Cooperation (APEC) group issued a statement at their meeting on Thursday in Moscow urging countries "to avoid export bans" in response to food price concerns.
I have pointed out last week that high food prices will likely impact emerging market monetary policies,
High commodity prices are likely to influence emerging markets consumer price inflation more. Food makes up a large segment of consumption basket for emerging Asia including the Philippines. This would prompt for their respective central banks to reluctantly tighten. Monetary tightening will put pressure on the stock market.
Stagflation, thus, also represents both a contagion and internal (political and market) risk for the Philippines and for emerging Asia
In the Philippines, officials of the domestic central bank, the Bangko Sentral ng Pilipinas’ (BSP) have indicated that the bank’s likely direction of policy actions may be confirming my prognosis.
From the Philippine Star,
Strong second-quarter growth may prompt the Bangko Sentral ng Pilipinas (BSP) to pause on easing monetary policy, a central bank official said yesterday, stressing that inflation and global developments will also be considered in deciding policy rates.
“Robust growth means the economy may not need additional stimulus,” BSP Deputy Governor Diwa Guinigundo told The STAR in a text message.
As always, political agents intuitively resort to alibis in the form of euphemisms. In reality, higher food prices (food price inflation) will gnaw away at statistical “robust growth”. The real reason why the BSP has taken a neutral stance is that easing policies will lead to higher food crisis, through artificial stoking of demand, that eventually could risks a domestic food crisis.
The answer to food price inflation should be for central banks to stop inflating, and importantly, for governments to allow markets to work
As Professor Steve Horwitz rightly explains,
globalization has nearly eradicated famines. All the market processes I have identified are even more effective when the area of trade expands. When commodity markets are global, countries facing droughts and bad harvests have a whole world from which they can attract new supplies. The United States is not limited to tapping farmers in Washington and Virginia. It can attract corn from around the world. In fact, Canadian farmers have had a much better year and are already seeing higher prices for their exports to the United States. Canadians will pay a bit more for their grains as a result, but prices in the United States will be significantly lower than they would be without the Canadian imports.
As Pierre Desrochers and Hiroko Shimizu point out in their wonderful new book, The Locavore’s Dilemma, the belief that making food production and distribution more local and less global will increase “food security” has it exactly backward. The most important thing we can do to ensure a secure food supply in the face of droughts and other threats to the harvest is to allow markets to work freely and extend that freedom globally.
We cannot control the weather, so the threat of drought is always present. But we can unleash the market and further globalize food production to avoid the human disaster of famines when harvests go bad. The conquering of famine is one of the great human accomplishments of the last century. That no one is starving because of the drought this summer is evidence of that victory. Let’s not let the forces of locavorism reverse those gains
Otherwise, agricultural protectionism will only magnify risks of global stagflation which may morph into a food crisis.
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