Food prices increase - OIL

Everybody know when price of oil increases, food price will definitely increases. But, let us understand why is a unit increase in oil price, in turn, increase the food price by more than 1 unit ? In economy, we call this as a multiplier effect.

Leave Malaysia case aside, because for me, Malaysians seller are outrageously tamak. Full stop.

But the idea here is to explain why there is multiplier effect when oil price increases.

Let us take an easy example - bread. Everybody here eats bread.

In order to make bread, we need wheat. Farmer who grows wheat has manufacturing costs associated to its production.

They are
1) energy..to run the machinery,
2) cost of land ...because some rent the land,
3) seed and fertilizer ... remember, many dont use baja asli anymore. they use nitrogen fertilizer.

These inputs are highly related with oil. Oil in 1998 was USD20 per barrel to USD90 per barrel last March, USD133 today and next year, it is expected to increase to USD250 per barrel*.

Ok, back to food. Food needs fertilizer. And many use Nitrogen based fertilizer. Key component in nitrogen is natural gas. Obviously, oil goes up, NG goes up, fertilizer goes up, food price goes up.

Now we ask..why these farmers gatal use nitrogen fertilizer ? because, nitrogen fertilizer is the most optimum input that can increase the productivity. Why they need to increase the productivity ? Again, because kita yang gatal nak makan bread byk sangat (hehehe). Nitrogen fertilizer price increased dramatically from USD100 per metric tonne in 1992 to USD350 per metric dollar this year. (phew..kalau tau, niaga nitrogen dulu).


In developing countries, like us, an increase in these things impose double impact on our food prices - increase in food prices & increase in oil prices. In many cases, these countries are net importer. It means, they import food MORE than they export^.

Another thing that contribute to high food price is an increase in transportation/shipping cost - that is the cost to bring the food from exporter to the importer.

Another thing is currency. When we buy things in USD, we have to pay more of our money because USD is stronger than Ringgit.

So guys, after this, JANGAN MAKAN ROTI..hehe kidding..I dont need to tell u what to do... u guys are wiser.

Makan bubur,
EMA ZULL


*Expect to have no subsidy at all next year because at USD200 per barrel, if the government still persist on giving subsidy, our country can file for bankruptcy.
^that's why our gomen encourage us to tingkatkan industri pertanian.