Why food price increases ?

Leave politics aside, let us recap and understand why is the global food price increases dramatically ?


We do not know exactly when does the food prices starts to soar. But a basic principle of economy applies where a higher demand combined with a shortage in supply results in a higher price.

The question is, from where the demand of food comes from ?

As we know, there are four major countries that are experiencing a remarkeable economic growth. China, India, Brazil and Russia (and its former Soviet countries). The growth has increased the standard of living of these people. In short, they have more money to buy more quality goods. The demand comes from these countries. Remember, these countries have populations of billions.

For example in India, the Indians consumption pattern has moved from buying in the small groceries stores to big supermarkets. The growth of big supermarkets indeniably reflects the wealth of its consumer.

The next question is, why is there shortage in supply of food ?

Insufficient natural resources (plants and animals). Again, let us see India. The increase in consumption especially in dairy products has resulted in high demand for cow milk. Look at our consumption pattern now. We eat meat regularly. In these countries, meat which was a very expensive item last time (during war and closed economy) now become a bless to them. Coupled with the increase in income, the opportunity to buy once an expensive item won't be neglected. Children of these countries who once sucking the ice cubes, started to enjoy ice-creams.

The supply however fails to meet the high demand. Not only the supply is insufficient, the problem is the milk/dairy industry has slumped greatly due to shotage in cow. Again why ? because of natural disasters that struck India.

So, friends, now we know at least one part of why the food prices have increased for the past couple of months.


Reference: Financial Times.

Tak bagi peluang nasi menangis,
Ema Zull