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Q&A: Why food prices and fuel costs are going up | Q&A: Why food prices and fuel costs are going up |
(30 days later) | |
Food prices around the world have been rising sharply. | |
And with floods hitting farmland in places such as Australia, which exports its wheat and sugar cane around the world, there are fears that they could continue to rise. | And with floods hitting farmland in places such as Australia, which exports its wheat and sugar cane around the world, there are fears that they could continue to rise. |
In January, the wholesale cost of food hit its highest monthly figure on record, according to the UN's Food and Agriculture Organization (FAO). | In January, the wholesale cost of food hit its highest monthly figure on record, according to the UN's Food and Agriculture Organization (FAO). |
Prices were higher than their peak in 2008, when a food crisis prompted riots and demonstrations around the world. | |
What's more, oil prices are also edging up, reaching their highest level in two years. | What's more, oil prices are also edging up, reaching their highest level in two years. |
Why are food prices rising? | Why are food prices rising? |
Following the 2008 peaks, good harvests for most basic foods helped prices to fall back. | Following the 2008 peaks, good harvests for most basic foods helped prices to fall back. |
But in 2010, severe weather in some of the world's biggest food exporting countries damaged supplies. | But in 2010, severe weather in some of the world's biggest food exporting countries damaged supplies. |
That has helped to push food prices almost 20% higher than a year earlier, according to the FAO. (The 2010 figure was slightly below the annual measure for 2008 as a whole.) | That has helped to push food prices almost 20% higher than a year earlier, according to the FAO. (The 2010 figure was slightly below the annual measure for 2008 as a whole.) |
Flooding hit the planting season in Canada, and destroyed crops of wheat and sugar cane in Australia. | Flooding hit the planting season in Canada, and destroyed crops of wheat and sugar cane in Australia. |
In addition, drought and fires devastated harvests of wheat and other grains in Russia and the surrounding region during the summer, prompting Russia to ban exports. | In addition, drought and fires devastated harvests of wheat and other grains in Russia and the surrounding region during the summer, prompting Russia to ban exports. |
As a result, wheat production is expected to be lower this year than in the last two years, according to US government estimates. | As a result, wheat production is expected to be lower this year than in the last two years, according to US government estimates. |
It will still be the third largest on record. | It will still be the third largest on record. |
But crucially, it is expected lag behind the growing demand for food, which is another key factor pushing up prices. | But crucially, it is expected lag behind the growing demand for food, which is another key factor pushing up prices. |
Have the prices of all foods gone up? | Have the prices of all foods gone up? |
The picture is mixed. | The picture is mixed. |
Rice, which is a staple in many Asian countries, hasn't risen by as much as other commodities because a record harvest is expected this year. | Rice, which is a staple in many Asian countries, hasn't risen by as much as other commodities because a record harvest is expected this year. |
In addition, some countries which don't rely on supplies from disaster-hit exporters haven't experienced the same price squeeze. | In addition, some countries which don't rely on supplies from disaster-hit exporters haven't experienced the same price squeeze. |
Prices of maize in East Africa, for example, where it is the most important food crop, have fallen by up to 50% following bumper harvests. | Prices of maize in East Africa, for example, where it is the most important food crop, have fallen by up to 50% following bumper harvests. |
There have also been more localised weather problems. They have received less coverage - but are no less important to farmers and consumers in those areas. | There have also been more localised weather problems. They have received less coverage - but are no less important to farmers and consumers in those areas. |
Onion prices have soared in India in the past month, following heavy rains in the west, where much of its supply comes from. | |
Like many governments around the world, the government has come under severe pressure to act, as onions are such an important part of the Indian diet. | Like many governments around the world, the government has come under severe pressure to act, as onions are such an important part of the Indian diet. |
In Central America, lack of rain has damaged bean crops and caused the biggest individual price rises, according to a recent FAO report. | In Central America, lack of rain has damaged bean crops and caused the biggest individual price rises, according to a recent FAO report. |
The price of red beans, part of the staple diet in the region, has almost trebled in the past year in El Salvador and Honduras. | The price of red beans, part of the staple diet in the region, has almost trebled in the past year in El Salvador and Honduras. |
What about speculators? | What about speculators? |
The FAO says speculators who trade commodities on the financial markets are not to blame for the huge rise in prices, but they have made matters worse. | The FAO says speculators who trade commodities on the financial markets are not to blame for the huge rise in prices, but they have made matters worse. |
Take sugar for example. Production has failed to keep up with the growing demand coming from developing countries, pushing prices sharply higher. | Take sugar for example. Production has failed to keep up with the growing demand coming from developing countries, pushing prices sharply higher. |
But the Economist Intelligence Unit also points to the role of speculators, who spotted the situation as an investment opportunity and "helped exaggerate" the price rallies. | But the Economist Intelligence Unit also points to the role of speculators, who spotted the situation as an investment opportunity and "helped exaggerate" the price rallies. |
The World Development Movement (WDM) is keen to curb this betting on prices. | The World Development Movement (WDM) is keen to curb this betting on prices. |
It wants greater regulation of the buying and selling of futures contracts - which are an agreement to sell a commodity at a certain price at a set time. | It wants greater regulation of the buying and selling of futures contracts - which are an agreement to sell a commodity at a certain price at a set time. |
These were created to reduce uncertainty as the producer has a guaranteed price and the buyer secures the goods they need. It is effectively a way for both sides to reduce the risk of doing business. | These were created to reduce uncertainty as the producer has a guaranteed price and the buyer secures the goods they need. It is effectively a way for both sides to reduce the risk of doing business. |
But the WDM and others think that trading these contracts like stocks and shares is pushing food prices even higher to the detriment of the poorest people. | But the WDM and others think that trading these contracts like stocks and shares is pushing food prices even higher to the detriment of the poorest people. |
And what's happening to the price of oil? | And what's happening to the price of oil? |
The price of a barrel of oil has topped $115 on the London market, the highest level for two and a half years. | |
There have been sharp rises in recent weeks following political unrest in oil producing countries in the Middle East and North Africa. | |
Underlying this uncertainty is the rising demand for oil. | |
Analysts point in particular to the thirst from China for energy to fuel its factories and power thousands of new cars. | |
Like food, it is difficult to escape the impact of the rising crude prices. | |
It not only directly affects the cost of fuel and energy, but also feeds into the prices of other goods by raising the cost of production and transportation. | It not only directly affects the cost of fuel and energy, but also feeds into the prices of other goods by raising the cost of production and transportation. |
As many economies around the world struggle to recover from a painful global recession, wages aren't rising to keep pace. So many are really feeling the squeeze. | As many economies around the world struggle to recover from a painful global recession, wages aren't rising to keep pace. So many are really feeling the squeeze. |