Food & Commodity Prices Are a Major Global Problem for Consumers & the Food Industry Overall

Since the mid-2000s, the upward march of prices for food commodities has been so dramatic that the cost of food has become a major concern on a global basis. This trend affects consumers, industry and government with a broad brush. Those feeling the most pain from rising food prices are consumers in low-income nations where food purchases account for a very large portion of monthly household budgets. Americans spend only about 10% of household income on food; the ratio can be 50% or more in nations with modest household incomes.

In 2013 and early in2014, high food prices were a stark contrast to the cheap food years of the 1970s and 1980s. For decades, improving farm technologies and high-output genetically modified seeds had consistently dampened food costs. The International Monetary Fund (IMF) calculates a food prices index that shows real food prices, adjusted for inflation, fell by nearly 75% over a 31 year period ending in 2005. Today, however, low-cost food is a thing of the past. The first three months of 2014 saw commodity futures prices for Arabica coffee rise by 71%, lean hogs by 42%, oats by 29%, wheat by 11% and live cattle by 8%. These price spikes were due to varying circumstances, such as regional droughts and a disease that is plaguing hogs in some regions.

However, late 2014 saw a surprising drop in food commodity prices across the board which continued into 2015. For example, the month of February 2015 saw meat prices fall 8% (including a 15% drop in swine prices and a 10% drop in beef prices), salmon prices fell 6%, Arabica coffee prices dropped 5% and sugar prices fell 4%. The World Bank expects commodity prices to continue declining through 2015, given that current good crop prospects continue for grains, edible oils and meals and beverages. Food commodities have been impacted by the significant drop in oil prices.

Many factors can impact food prices. For example, drought or other adverse weather conditions can create shortages and consequently hikes in prices. From 2006 through much of 2009, Australia was suffering from a crippling drought. Then, in a dramatic change in early 2011, a major swath of Australia was inundated by flood waters. Meanwhile, in late 2010 and early 2011, Argentina, a major agricultural product exporter, was suffering from a drought, while grain fields in Saskatchewan, Canada were hit hard by flood and wheat fields in China were threatened by drought. Many areas in the U.S. weathered droughts in 2011 and 2012. Furthermore, devastating winter storms pounded much of the U.S. throughout late 2013 and through the winters of 2014 and 2015.

Global prices for food are also affected by changes in demand. A particularly good example is the intense demand for corn to be used as a source for ethanol production. Never in the history of the world has there been a major diversion like this of a basic crop to satisfy fuel demand instead of food demand. Massive U.S. federal government subsidies for ethanol production (which expired at the end of December 2011 after being in effect for several years) are behind most of this problem. A similar shift of a crop from food to fuel occurred in palm oils. Palm oil is a major crop in Indonesia, but a large part of the end-use for palm oil is now biofuel for Europe. In Brazil, massive amounts of sugar cane are being used for ethanol production instead of food production.

At the same time, growing prosperity in nations such as India and China drove food demand, and thereby led to higher prices, in recent years. Rapidly growing middle and upper classes want more protein (often in the form of meat), richer foods and more food in general as a natural use of their growing wealth. The global middle class, measured in terms of people whose incomes have reached levels where they are able to make discretionary purchases such as increased food levels, will soar from 2 billion people in 2012 to nearly 5 billion by 2030. The pressure on food supplies and prices will be intense.

Food producers, manufacturers and distributors are also affected by costs for fuel and energy. Costs for on-site energy, fuel for vehicles and equipment, along with costs for inbound and outbound freight were at extremely low levels, as of early 2015, in sharp contrast to high prices of recent years. Rising costs of water will eventually become a major factor in food costs.

Steps that Could Increase Global Food Supply While Ensuring Reasonable Price Levels:

1) Production could be increased by investment in agricultural technology;

2) More crop land could be brought on line, particularly in remote areas of Africa, South America and Russia, but this could take several years and require large investments in infrastructure;

3) Government crop subsidies could be reformed to emphasize higher production of the most-needed crops in a sustainable manner; and/or

4) A greater acceptance by consumers and governments of genetically modified seeds could boost output of existing cropland;

5) Overall, global food and agriculture policy should focus on more efficient use of irrigation, along with higher agricultural efficiency overall and less spoilage and wastage—particularly through increased availability of proper crop storage and better transportation, such as improved roadways, to speed crops to market.

Source: Plunkett Research, Ltd.

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

Become a Plunkett Research Online subscriber to gain unlimited access to our massive amount of vital industry data and market research.

✔ 100,000 Industry Statistics
✔ 500 Industries Analyzed for Market Size, Profits and Forecasts
✔ 150,000 Industry Executives Profiled
✔ 25,000 Companies Profiled, Ranked and Analyzed
✔ 1,000 Vital Trends Analyzed, totaling 1,000,000 words

Learn More

Food & Commodity Prices Are a Major Global Problem for Consumers & the Food Industry Overall, Business and Industry Trends Analysis

A Representative List of Organizations that Have Used our Research and Products:

How to access Plunkett Research data.

What data challenge can we help you solve today?

Take a Tour

Contact

Testimonials