Nestle Chief Warns of Food Riots

October 8th, 2011
in Background, econ_news

by Sanjeev Kulkarni

food-riotEconintersect:  Peter Brabeck-Letmathe, Chairman of Nestle has sounded an alarm bell on food riots. "The situation is similar (to 2008). This has become the new reality," the Swiss giant's chairman Peter Brabeck-Letmathe told the Salzburger Nachrichten daily in his native Austria in an interview, as as reported by AFP.  Brabeck-Letmathe said that food prices are likely to settle down at new, substantially higher levels.

Follow up:

Food prices rose very sharply in 2007 and in first half of 2008 resulting in food riots. The rise in food prices was attributed to number of factors: increasing population, increase in petroleum prices leading to higher fertilizer prices and speculative trading in financial markets.  From Wikipedia:

In a 2010 article in Harper's magazine, Frederick Kaufman magazine accused Goldman Sachs of profiting while many people went hungry or even starved. He argued that Goldman's large purchases of long-options on wheat futures created a demand shock in the wheat market, which disturbed the normal relationship between Supply and Demand and price levels.

The food inflation battle is far from over.  Many developing countries continue to stagger under the burden of food inflation.  India's Reserve Bank has been arguably the most hawkish among developing economies with brutal rate hikes to battle headline inflation which shows little sign of abating.  As per the AFP report:

Food price inflation this year is seen as having contributed to the "Arab Spring" unrest in north Africa and the Middle East and there are fears of fresh unrest elsewhere.

The UN Food agency tracks food prices through its FAO Food Price Index and the index has risen from 90 in 2004 to 225 in September 2011.  That is an average inflation rate of 14% per annum, compounded.

Where in the world one lives will determine how severely food price inflation affects people.  Not only is the rate of inflation widely variable, but the standard of living is also an important factor.  As rightly observed by Brabeck-Letmathe, the impact will be felt the most in developing countries. He said,

"If you live in a developing country and spend 80 percent of your income on food then of course you are going to feel it more than here (in Europe) where it is maybe eight percent."

Fiscal and monetary measures followed by Governments worldwide are only palliatives. Increasing agricultural productivity to cater rising population has to be addressed. Every second the world population is growing by four people, while 0.3 hectares of agricultural land are lost, according to Salzburger Nachrichten. "This is absolute madness" says Peter Brabeck-Letmathe.

Sources:

Nestle chief warns of new food riots: AFP Report
Riots, instability spread as food prices skyrocket: CNN 2008
2007–2008 world food price crisis: Wikipedia
FAO Food Price Index: FAO
The Swiss group calls for greater investment in global agricultural land: Salzburger Nachrichten.








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