Why Are Food Prices So High?

Michael Giberson

We’ve played the food-into-fuel answer to the title question in previous posts, but Ajay Shah posts a deeper, more thoughtful explanation in which biofuel subsidies and mandates just barely warrant a mention.

He is not persuaded by the hypothesis that the “pike in world food prices is caused by increased demand in China and India, particularly the shift towards consumption of meat as people get richer.” Not persuasive, he says, because it doesn’t explain why “the price index for major food crops was stable … from 1990 till 2005, and spiked thereafter. China and India had a massive transformation of incomes and the structure of the food basket from 1990 to 2005.”

As he develops his story, it turns out that growth in China and India does play a central role, but the role is more nuanced that the simplistic version he first considers. Speculators, storage, and the Irish potato famine all get a mention. Worth reading. (HT to Marginal Revolution)

It is also worth remembering, as an anonymous commenter mentioned here a few days ago, that at the root of the rise in the price of oil (and the point applies to food as well) “is a positive development: an unprecedented boom in the world economy” as India, China, and other nations see transformational booms in economic activity.