Food Prices Scary? You're Not Alone

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Grocery bills not only across America, but around the world are going up. Consumers worldwide are facing rising food prices.

It's called a perfect storm of conditions -- freak weather, changes in the global economy, including higher oil prices, lower food reserves and a growing consumer demand in China and India.

The poorest nations of the world run the greatest risk of hunger. Bread fights in Egypt resulted in the deaths of at least two people last week. Other clashes over food broke out in Burkina Faso and Cameroon this month.

Food Protests

But now food protests even break out in Italy.

"It's not likely that prices will go back to as low as we're used to," said Abdolreza Abbassian, economist and secretary of the Intergovernmental Group for Grains for the U.N. Food and Agriculture Organization. "Currently if you're in Haiti, unless the government is subsidizing consumers, consumers have no choice but to cut consumption. It's a very brutal scenario, but that's what it is."

Prices are expected to stabilize, according to long term outlooks. Farmers are growing more grain for both fuel and food. This will bring prices down. This is already occurring with wheat as more crops are to be planted in the U.S., Canada, and Europe in the coming year.

Consumers, however, can expect at least ten years of more expensive food, according to preliminary FAO projections.

Supply and Demand

One of the driving forces behind the climbing food prices is petroleum. This one factor increases the cost of everything from fertilizers to transport to food processing.

The price of grain is going up too. Used to feed cattle, it is now in demand as a raw material to make biofuels. This in turn is causing a rising demand for meat and dairy products in China and India.

What analysts say is rare is the spikes are hitting all major foods in most countries at once. Food prices rose four percent in the U.S. last year, the highest rise since 1990, and are expected to climb as much again this year, according to the U.S. Department of Agriculture.

As recently as last December, 37 countries faced food crises. Twenty more had imposed some sort of food-price controls.

The U.N.'s World Food Program says it's facing a $500 million shortfall in funding this year to feed 89 million needy people.

In decades past, farm subsidies and support programs allowed major grain exporting countries to hold large surpluses, which could be tapped during food shortages to keep prices down. But new trade policies have made agricultural production much more responsive to market demands - putting global food reserves at their lowest in a quarter century.

Price Factors

Without reserves, bad weather and poor harvests have a bigger impact on prices.

"The market is extremely nervous. With the slightest news about bad weather, the market reacts," said economist Abbassian.

Economists say that for the short term, government bailouts will have to be part of the answer to keep unrest at a minimum.

"We need a response on a large scale, either the regional or international level," said Brian Halweil of the environmental research organization Worldwatch Institute. "All countries are tied enough to the world food markets that this is a global crisis."

Source: The Associated Press

*Original broadcast March 25, 2008.

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