Food Prices to Rise in 2011

According to the USDA food prices are expected to rise 3-4% in 2011. This rise is due to factors such as the rising price of oil, radical weather and growing demand on the world's supply, use of food crops for bio-fuel and commodities speculation. Some believe that 3-4% is a low ball projection.

In August of 2010, a drought in Russia, the world's third largest wheat exporter, caused Russia to shut down wheat exports until the end of 2011. China, which accounts for a sixth of global wheat production is also experiencing drought. While forecasters do not predict it will have a huge impact on food prices, accelerating inflation in China is already showing up in the prices American companies pay for imports from China.

In the past year the prices of soft commodities such as corn and soybeans have risen. By October of 2010 corn had risen 41% from the year before, wheat was up 13% and grain sorghum, which is used to feed livestock was up 61%. Much of this rise has been absorbed by retailers. From late 2009 to late 2010 wholesale food prices went up 5.1% while over-all retail food costs only rose 1.4%. However, there is only so much cost that retailers can absorb in the name of staying competitive. If commodities stay where they are or continue to rise then retail prices will follow. General Mills and McDonald's are among companies that have already begun raising prices.

Rising food prices may only be the beginning. According to Dan Coxe, a farm commodities expert for BMO Financial Group, " When we have the first serious crop failure (in the U. S.) which will happen, then we will have a full blown food crisis. We've got complacency here. . . I believe the next big food crisis, when it comes, will be a bigger shock than $150 oil."

Possible Solutions

In a Forbes.com article in October of 2010, article writer, Addison Wiggin suggests investing in the rising commodities as a means of hedging against the impending price increases. Trying to make a profit seems a rather opportunistic response, especially since speculation is a contributing factor in food cost inflation. Other suggestions from China Daily contributor, Marcos Fava Neves, include reducing food taxes and other market barriers that increase costs for the final consumer, invest in global logistics to reduce waste and food transport costs, use the best sources for bio-fuel that don't compete with the food chain-- for example: ethanol from sugar cane rather than corn and a cheaper and more innovative source of fertilizers-- which currently represent a high cost to farmers. But individuals may also get involved at a local level. Fred Magdoff of the Monthly Review notes that "Urban gardeners have been used successfully in Cuba as well as in other countries to supply city dwellers with food as well as sources of income."

I wrote this hub in March of 2011. It is now just a few days away from New Year's Day 2012. I read the following article on Yahoo and didn't find it that exciting. What I did find concerning were some of the comments that followed the article.

http://shine.yahoo.com/financially-fit/5-most-dramatic-food-price-hikes-2011-185000903.html