Oil prices driving up the cost of food
Oil prices have reached the mindboggling level of $100 per barrel.
Analysts wonder when they will soar to $110 or even $120, while
exporting countries are counting future revenues, car owners shuddering
at the prospect of prohibitive gas prices, and macroeconomic specialists
are trying to forecast the rate of inflation adjusted to the potential
growth of gasoline prices.
Expensive oil means above all more food problems. We will soon have a
crisis on the food market with fat years, when industrialized countries
looked for a suitable way to get rid of surplus food, giving way to lean
years.
On the other hand, there would have been problems on the global food
market even if oil prices had not risen so high.
First, arable land is a finite resource. The global population is
increasing exponentially, with more land being taken over by enterprises
and housing.
In the past decade, the area of farmland in China has dwindled by
nearly 20 million acres. The area of arable land in Russia, which has
10% of the world's total, has dwindled from 290 million acres to 284
million over the last three years. Over the same period, three major
agricultural producers - Russia, Ukraine and Kazakhstan - have lost 59
million acres of cropland, according to the Institute for Agrarian
Market Studies. It is almost impossible to increase the area of arable
land, which could enhance the effectiveness of crop growing, because of
the lack of water. In short, the world cannot increase crop production,
although crops are a vital element at the base of the food pyramid. It
takes 7 kg of grain to produce 1 kg of beef, and 3 kg to produce 1 kg of
pork. But it takes 900 litres of water to grow 1 kg of grain.The second
negative factor is the changing diets of China and India (already
referred to as Chindia). A minor increase in proteins in their diets has
provoked an explosive demand for food; they now need more and more grain
to produce meat, which the Chindian middle class has come to love so
much.
The growing food demand - and prices - has had its first effect on
China. On February 19, the Chinese Central Bank announced that record
inflation of 7.1% was registered in January, the highest in the last 11
years. It was fuelled by the growth of domestic food prices by 18%
(prices of pork went up 59%, cooking oil 37% and vegetables 14%).
And the last factor increasing food prices is climate change, namely
draughts, floods and unusually severe frosts. The situation will be
seriously compounded by the growing oil prices. Scared by the
skyrocketing oil prices, humankind has initiated the production of
biofuel, which only dreamers advocated a decade ago. Oil crops are used
to produce biodiesel, while beets, sugar cane and maize are the raw
material for ethanol. But if we start using plants for the production of
biodiesel, we will have no palm oil and rapeseed for cooking oil, flour
maize for flour, and beet and sugar cane for sugar.
The situation for the part of the human population that regards grain
as food has not become catastrophic yet. The International Grain Council
has calculated that only 107 million tons (6.5%) of grain out of the
1,650 million grown in the 2007-2008 agricultural season will be used to
produce biofuel. However, the "inedible" share may increase to 30%
within two or three years.
Grain brokers can fuel the demand for grain, just as it is now
happening with oil, whose growing prices reflect not so much the balance
of supply and demand, as the balance of oil traders' fear and greed.
Exchange traders have already gauged the capabilities of the grain
market.
RIA Novosti
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