by Sanjeev Kulkarni
Econintersect: 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.