Last week, The New York Times ran a fascinating story talking about how commodity price inflation -- thanks in part to rising global demand and bio-fuels -- is hitting home at dinner tables around the world. According to The Times, "The food price index of the Food and Agriculture Organization of the United Nations, based on export prices for 60 internationally traded foodstuffs, climbed 37 percent last year. That was on top of a 14 percent increase in 2006, and the trend has accelerated this winter." As a result of this inflation, some countries are taking significant steps to preserve capacity and keep prices affordable. Consider how "Egypt has banned rice exports to keep food at home" and "China has put price controls on cooking oil, grain, meat, milk and eggs."
While the usual suspects -- increasing global demand and the rise of food products as energy substitutes -- are playing a large role in driving up costs, rising energy prices have also "altered the equation for growing food and transporting it across the globe." In other words, as transportation costs rise, it makes less and less sense to ship basic commodity items (wheat, soybeans, rice, etc.) around the world. What's the solution? Given that no one can see an end in sight to $100 per barrel oil, it will take new, rising localized -- not just global -- capacity to meet today's demand requirements. Only then, will be see a permanent fix to current shortages and rising prices.
- Jason Busch