Economist: “Agflation”

Interesting cover story and series on rising food prices from The Economist. From the lead-in of "Cheap No More":

Rising incomes in Asia and ethanol subsidies in America have put an end to a long era of falling food prices…

And from "The End of Cheap Food":

Rising food prices are a threat to many; they also present the world with an enormous opportunity…

In the latter article, the magazine provides no cover to government policy makers, especially in the developed world:

With agflation, policy has reached a new level of self-parody. Take America’s supposedly verdant ethanol subsidies. It is not just that they are supporting a relatively dirty version of ethanol (far better to import Brazil’s sugar-based liquor); they are also offsetting older grain subsidies that lowered prices by encouraging overproduction. Intervention multiplies like lies. Now countries such as Russia and Venezuela have imposed price controls—an aid to consumers—to offset America’s aid to ethanol producers. Meanwhile, high grain prices are persuading people to clear forests to plant more maize…

And it provides some important guidance on the direction farm agricultural (and by extension, energy) policies ought to take, in a section entitled "Where government help is really needed":

Three-quarters of the world’s poor live in rural areas. The depressed world prices created by farm policies over the past few decades have had a devastating effect. There has been a long-term fall in investment in farming and the things that sustain it, such as irrigation. The share of public spending going to agriculture in developing countries has fallen by half since 1980. Poor countries that used to export food now import it.

Reducing subsidies in the West would help reverse this. The World Bank reckons that if you free up agricultural trade, the prices of things poor countries specialise in (like cotton) would rise and developing countries would capture the gains…And because farming accounts for two-thirds of jobs in the poorest countries, it is the most important contributor to the early stages of economic growth…the really poor get three times as much extra income from an increase in farm productivity as from the same gain in industry or services…

In our view, "agflation" has also been helped along by easy policy stances among the world’s major central banks, and increasing investment and growth in developing economies. Note that food prices are not the only commodities experiencing historically high price levels. Non-food agro, gold, and oil are also higher by double digits in The Economist’s latest commodity price index.