Rising food prices only a couple of years earlier were signaling hunger for many and spiking inflation for all. The trend has now switched in the opposite direction, at least seemingly and perhaps temporarily. The UN’s Food and Agriculture Organization (FAO) has issued a new monthly report extending a downward trend in most but not all food prices. The FAO Index has dropped 1.8% for March and almost 20% from its peak extending a downward trend for most food commodities since April 2014. The Report is linked below, (see: “FAO Food Price Index Drops Again in March Driven by Sugar’s Sharp Slide“) but we should highlight a few aspects that need to be taken into consideration:
— Lower prices to small farmers for their crops can translate into lower incomes, deeper poverty and paradoxically hunger for some caught in subsistence living.
— Prices in some key food commodities have remained relatively high – for example in March 2015 dairy rose while sugar was the biggest dropper – and is this always reflective of more nutritional and healthy options for food consumption?
— “Organic” food has been in the greatest demand among the younger and more economically advantaged global citizens. Has there been an adequate shift in production, from priority to subsidies, to encourage organic over industrial farming employing pesticides, genetic modification and/or unsustainable production methods?
— Spiking food prices only a couple of years ago were being driven in significant part by financial speculation as much as by any genuine demand and supply considerations. Hoarding also played a role in creating some perceived shortages. Do today’s lower prices present an unwinding of speculation or just financial bets now being placed in the opposite direction and thus driving prices artificially down?
A drop in food prices by almost 20% as well as the sharp rise prior to then present a challenge to true market forces, planning/budgeting for farmers to consumers. The most vulnerable, from subsistence farmers to minimum wage restaurant workers to consumers living at or below the poverty level, the high volatility in food prices itself may present an insurmountable challenge and present financial quicksand denying the opportunity to advance through self-improvement and sustainability. The FAO has noted this risk/threat in the past. WhyHunger is a US based global NGO that has also sought to tackle such questions and real world challenges including further access to nutrition and hunger as human rights considerations. (See: Why Hunger)
Deflation or Affordability?
The drop in food prices regardless is generally welcome by most consumers, from the giants as a McDonald’s to the urban shopper at his/her mega grocery store. The reduction also mirrors a parallel drop in most other commodities, from oil to industrial metals. This may portend an ever greater risk to the global economy as well as the average citizen. Deflation is more dangerous than inflation in that it stunts or can even recirculate into lower economic growth, less jobs, lower wages and even greater poverty/hunger with greater obstacles to upward mobility for ordinary global citizens as well as potentially lower corporate profitability. The almost universal strategy by the globe’s key central banks to move toward monetary policy easing indicates that the best or at least most in charge financial minds see deflation as a real threat. Dropping food prices may be only the latest and perhaps tardy indicator of such risk.