After the Oil Crisis, a Food Crisis?

This article talks about the rising food prices being experienced globally and their effects. She gives facts and figures to show that the inflation is being experienced everywhere, both in developing and developed countries. However, the effects discussed largely concentrate on developing countries. The author also discusses possible causes and effects of this global phenomenon.

She argues that the world’s food prices have increased steadily due to increased price of energy (especially oil) and an increase in the demand due to population growth. The other issue cited as a cause of rapid food inflation is the use of biofuels, especially the diversion of food crops for use in energy production. Additionally, she talks of global warming having a negative effect on food production.

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The first idea is that the food price increase is real. She states, using figures that the prices have increased everywhere, both in the developed and developing countries. However, the price increase varies from place to place. It is more in poor, food importing, developing countries than in other countries.

The second idea is that oil is the largest cause of food inflation. She states that high oil prices have resulted in increased food import prices. The specific way that oil drives up prices has not been discussed in depth.

Thirdly, the use of biofuels has affected the demand side of the equation. These biofuel products are also food crops, mainly cereals. By using them for fuel, they constrict the availability of food, causing the price to increase.

Lastly, she gives other causes of increased food prices. They include increased pressure from growing economies China and India, and the effects of global warming. Global warming has led to extreme weather, causing a drop in food production globally.

Demand: this has been dealt with in respect to food demand. The law of demand has been seen in this case with an increase in price of food due to increased demand.

Supply: this has also been dealt with in respect to food availability. The scarcer the food has become, the more expensive it is. Supply has also been constricted by the fact that the product has found multiple uses: it is both used for food and fuel. When supply and demand interact, they produce the equilibrium that sets the price level.

Production costs: oil is used in the production process of food. An increase in oil prices causes an increase in the price of input and thus an increase in the cost of production. Therefore food prices are directly proportional to the price of oil, the input product.

Substitute products: biofuels are seen as a substitute product for oil. The price of oil causes an increase in demand for cheaper substitute, biofuel. The increased demand for biofuel causes an increase in its price.

Inflation: the changes in the global economy have caused an increase in the price of food.

Demand: the willingness and ability to purchase a specific good or service at a particular time

Supply: the total quantity of a good or service that is made available for buyers in the economy

Production costs: the total value of the inputs (both goods and services) used in the producing of a good or service.

Substitute good: this is a good or service that can replace another good or service because it satisfies the same need.

Inflation: this is the general increase in the price level in an economy.

I think the article has a valid argument, that oil prices, biofuels and global warming affect the price level of the food output. I agree that increased demand for food from emerging economies would drive up food prices internationally.

However, I think the predictions do not take into account other factors that affect food production and energy, such as technology and innovation. If innovations in agriculture like GM foods are applied, the supply curve may be shifted to the left due to an increase in supply.

Additionally, I think that biofuels would bring balance to this equation. If biofuels are properly used with other energy alternatives, they could cause a drop in the demand for oil. This drop would cause a drop in the price of oil and a drop in the cost of energy. In the end, commodities that depend on oil as an input, including food would benefit.

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