Blog: Dean BestPoor face double whammy from commodity spiral

Dean Best | 10 August 2012

The UN has produced data that confirms the impact the extreme weather in the US has had on global food prices. In the West, we face higher retail prices but poorer nations will be hardest hit.

The UN's Food and Agricultural Organization said its food price index climbed 6% in July after three months of decline. Grains and sugar prices drove the increase.

The index, which measures the monthly change in the international prices of a basket of food commodities, averaged 213 points, up 12 points from June.

The index reached its peak in February 2011, when it hit 238 points. However, the July data demonstrated how the hot weather in the US has pushed up global food prices.

The worst drought in 50 years in US has hit corn and soybean production - two key ingredients for animal feed.

In its report, the FAO also said rain in Brazil had hit sugar harvesting and pointed to fears wheat production in Russia could be lower.

Consumers fear higher grocery prices will put pressure on income. The US government has forecast retail prices for products like meat and dairy to rise later this year and into 2013.

Some suppliers have publicly stated they will look to increase prices to offset the commodity bill. Hovis manufacturer Premier Foods told the City this week that it will look to pass on higher wheat costs to its retail customers.

The question for consumers is: how much will retailers pass on to us? Retailers get a bad press but they are acutely aware of the pressures facing our spending - they have to be for competitive reasons. That said, supermarket chains in the US and the UK have their own shareholders to please. Will they accept the price hikes from suppliers and absorb some or all of the cost? Or will they pass it all on to us? I don't think it will be the latter but we will some increase.

That said, while we can feel sorry for ourselves, the prospect of higher food prices will no doubt hit the poorest nations hardest.

Higher food prices mean higher import bills for the poorest countries, which do not produce enough food domestically, and a strong dollar would deepen that impact. 

It could be, for the poor in Africa, Asia and Latin America, a double whammy.



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