Food Prices: An Introduction to Agroflation

For blog postings to get bumped up to the front page here, they need a snappy visual. If I can find an image likely to hook the prospective reader, reel them in, and make em giggle, then it’s a good candidate for prime-time. Of the six visuals in this story, precisely none are prime-time. They’re more comfortable in the late-night C-Span slots, after all the really sexy committee meetings have been screened.

rising price of food

But I can’t really apologise. Understanding the price rises in food, or agroflation as it’s now being called, means getting down and dirty with some data. Now, I’ve been mouthing off about this, briefly, in an excellent piece by Alex Renton in today’s Observer. I’ve also had a go at trying to explain it on the BBC World Service show, Your World Your Say, which you can listen to by clicking the link. But of these venues, welcome though they were, neither really gave me a chance to tell the whole truth. So here’s a fuller explanation of what’s going on behind the scenes at the supermarket.

The above-the-fold version of the story is this: the recent rise in food prices has been widely explained with reference to the increasing global population, increased meat consumption, the hike in the price of fossil fuels, and climate change. For the story behind the story, read on.

The below the fold story is a bit more complex. I’m drawing here on a couple of key sources, The Financial Times and two articles in The Economist. The factors, just to be clear, are these:

  • Population increase, meaning more people who demand food
  • more people more meat

  • Increase in the demand for meat: Meaning that much more of the world’s cereal gets diverted to feeding animals, rather than feeding people
  • Increase in the price of oil, oil price risewhich means the diesel used by industrial farmers in their equipment, as well as the cost of shipping shipping price riseand the price of fertiliser (heavily fossil fuel dependent) fertiliser price riseare all more expensive.
  • Climate change, which can further be cashed out into two components. The first is shitty weather – last year was rubbish for harvests, with sun and rain coming at just the wrong moments. The second component involves the insane human response to it – biofuels. And if you think biofuels aren’t going to harm poor people, you really ought to read the previous post.

So what has been the upshot? Well, as the UK’s Daily Telegraph has howled, it means the prices have gone up at supermarkets.
price increases in supermarkets (click image for more legible version).

But, as I told Alex Renton for his Observer piece, the way the Daily Telegraph tells it, the supermarkets are the mere mouthpieces of bad price-related news. It’s worth looking behind the prices, though. Yes, it’s true that increased population, increased demand for meat, and the prospect of big vats of cash for biofuel producers have together kicked up the price of primary commodities. None of us buys our groceries from the Chicago Board of Trade, though. We rely on supermarkets to be the intermediaries between us and the global markets. If input costs have gone through the roof, we might think this would put the pinch on supermarkets. This is where our intuitions are precisely wrong. The reason to think that supermarkets would take a hit is if they were in a contract they couldn’t get out of that forced them to sell at a low price even when their costs were higher. In fact, it’s usually *farmers* who are in this position. They’re the ones who are often forced by circumstance to settle for a contract with a supermarket in which they guarantee to provide goods to the retailer at a certain price. (Rare is the farmer with a kind word to say about supermarkets.)

In other words, we shouldn’t think of supermarkets as innocent victims of price rises. Sainsbury’s and Tescos have recorded double digit growth in profits over the previous year. As well they should. They’re the ones who locked suppliers into the contracts in the first place. As my MBA-holding brother once told me in an unfortunate toilet-based metaphor: “even when things are going down the pan, there are people who can ride the wave down to the bottom”.