Marketplace Middle East - Blog
4/10/08
Food Inflation: From Chronic to Acute

The scenes seem to be from a different era; men and women scramble for what little bread there is left to buy. President Hosni Mubarak of Egypt orders bakeries from the police and the military to go into overdrive to provide whatever supplies they can.

President Mubarak, a man in power for 27 years, knows the link between ample food and a stable population. The problem for him and other leaders of the Middle East right now is that there is precious little they can do about it. Prices are surging for bread and a whole basket of vital commodities such as sugar, rice and cooking oil. It seems ironic that a region, Egypt included, awash with oil and/or natural gas is having problems with the basic staples of life.

The Middle East is certainly not alone. It is a fair point to say that the rise in food prices has moved from the chronic to acute stage. The challenge certainly is that the burden falls on the people who can least afford it.

According to the United Nation’s Food and Agriculture Organization (FAO), food prices have risen by 45 percent in the last nine months alone. That is serious. Jordan’s inflation rate surged nine percent in the last month. Syria saw their food prices climb 20 percent in the past half year. The list goes on and on. The FAO’s director-general Jacques Diouf said “unrest will spread” where half or more of income is spent on foodstuffs alone. Most of Africa falls into that category and so do many parts of the Middle East where poverty levels are still too high.

Ahead of the International Monetary Fund/World Bank meetings in Washington, British Prime Minister Gordon Brown wrote to the current head of the G8, Yasuo Fukuda, his counterpart in Japan. Brown said “rising food prices threaten to roll back progress made” on reducing poverty and fostering development.

A Perfect Storm

What we are witnessing today is a confluence of many factors hitting at the same time:

1. Global demand remains high despite a predicted slowdown in G8 economies

2. The rush to bio-fuels has created an artificial shortage for a basket of grains

3. Hedge fund investors have piled money into commodities, driving prices up even further

As a result, the World Bank candidly admitted that the situation, despite the threat of recession, will remain bleak through 2009. Worst yet, they are predicting that food prices will not come down to pre-2000 levels until 2015. Obviously, like the Titanic, it is not easy to steer agricultural policies that really miscalculated the economic surge of the Middle East, plus Brazil, Russia, India and China (the so-called BRIC countries.)

Complicating matters for the Middle East, last weekend Gulf leaders restated their loyalty to the U.S. dollar and that they will not de-peg their currencies.

As Daniel Hanna a visiting fellow at the Royal Institute of International Affairs said: “When you've got a situation of the dollar being at historical lows against the yen, against the Chinese currencies, against the European currencies, that has a knock-on impact onto the region as a whole. That kind of double-whammy effect has really pushed up sort of day-to-day prices across the whole of the region.”

So look for more proclamations against the rise in prices from many corners of the globe as leaders gather in Washington, but don’t be lulled into believing they will have any real solutions.

ABOUT THIS BLOG
John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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