There was an excellent article in Toronto’s Globe & Mail newspaper last weekend (reporters Joe Friesen and Marcus Gee) that discussed why world food prices are increasing so dramatically at this time. For example, the food sub-component in the U.S. Consumer Price Index rose 4.8% year over year in January 2008.

Two of the key reasons are as follows. The first has to do with the price of corn, which has been climbing. Corn is a crop that is used throughout the food chain. Along with soybeans, it is a primary feedstock for cattle, hogs and fish. Of course, it is also a staple in its own right in many countries, plus corn syrup is used as a sweetener in a host of beverage and food products.

However, there is now an alternative use for corn as well. It can be distilled to produce ethanol, a clean-burning additive to gasoline. This has become an important use due to the concern about the environment. Approximately 20% of the current U.S. corn crop is earmarked (pun intended) for ethanol. Growing use of corn for ethanol tightens its supply in the regular food chain and also crowds out some other crops in less developed countries. This is one of the factors driving up overall food prices.

The other key factor (as is the case with so many things these days) relates to the onrushing economic growth that is occurring in China and India. The Globe & Mail article estimates that 50 million people per year are now moving up to the middle class in those two countries. This is having a major impact on eating habits, since these individuals no longer want to just get by on subsistence diets. They are expanding their dietary requirements to include more cereals, grains, dairy, poultry and other meat products.

Alex Carrick

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