Business | General
Consumers face rising food inflation
Lack of farmland and soaring costs mean growers will fail to keep up with demand
- Bloomberg
- Published: 00:00 April 1, 2011
- Image Credit: EPA
- A woman shops for groceries at a supermarket in Brooklyn, New York. The US consumer price index rose 0.5 per cent in February, the most since June 2009.
London: Coffee, sugar and cocoa prices will rise five- to 10-fold by 2014 because of shortages that will mean consumers getting "swamped" by food inflation, according to Superfund Financial.
A lack of farmland and rising costs means growers will fail to keep up with demand, said Aaron Smith, managing director of Superfund Financial (Hong Kong) Ltd and Superfund USA Inc Commodities account for about 40 per cent of Superfund's $1.25 billion (Dh4.58 billion) assets under management. Smith correctly predicted record copper prices in November and a month later rightly anticipated that silver would outperform gold.
A United Nations index of world food prices jumped to a record last month, contributing to riots across northern Africa and the Middle East that already toppled leaders in Egypt and Tunisia. Global food security is threatened by "excessive price volatility and speculation," farm ministers from 48 countries said in a joint statement after meeting in Berlin in January.
"There's a tremendous shortage of food, there's a tremendous shortage of arable land," Smith said in interview in London. "Any kind of food products are going to increase."
Price increases
Coffee jumped more than fivefold in the two years through July 1994 and more than tripled from February 2002 to March 2005. Sugar prices rose fourfold from June 2002 to February 2006 and more than tripled from June 2007 to February last year. Cocoa advanced 242 per cent from December 2000 to January 2003.
Arabica coffee traded on ICE Futures US in New York almost doubled in the past year and traded at $2.648 a pound on Wednesday. Raw-sugar futures advanced 52 per cent to 27.21 cents a pound, while cocoa rose 0.6 per cent to $2,987 a metric ton.
Coffee prices jumped after wet weather damaged crops in Colombia and on forecasts for a smaller harvest in Brazil, the world's largest exporter. Sugar gained after floods in Pakistan and Australia and cocoa advanced as fighting after elections in November disrupted exports from Ivory Coast, the largest grower.
Superfund, founded in Vienna in 1995, specialises in so-called managed futures, using its own trading system to buy and sell commodities and currency futures, stocks and bonds. It has a 24-hour trading operation in Chicago, Smith said.
The US consumer price index rose 0.5 per cent in February, the most since June 2009. Asian countries from China to Indonesia raised interest rates this year to curb inflation.
Euro-region inflation quickened to 2.4 per cent in February, the fastest in more than two years and above the European Central Bank's 2 per cent limit.
Other issues
Access to water, higher labour costs and rising incomes are also issues for food commodities, Smith said. "There's about 7 billion people in the world," he said. "When you have that many people, it only takes tens of millions of people to move up a market that's so small like sugar."
World food production will have to increase by 70 per cent by 2050 to meet increasing demand from an expanding global population, projected to rise to 9.1 billion by 2050.
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