Food inflation is a result of failure of many things over many years by all countries.
Let me list few which i think are the reasons for food inflation.
Propping up of US Dollar: Many world economies are dependent on US consumers and have more or less invesnted policies to keep Dollar stronger. They did this to be able to profitably expor to United States. This encouraged Americans to spend beyond their means causing inflation to rise.
Weak Dollar:Due to globalization and free flow of money among many countries caused mayem in financial markets. Cheap money started flowing into america and thus credit was available easiliy. The finacial markets collapse due to exotic derivatives (uregulated) and collapse of US economy (subprime mess) is causing US Dollar to fall. With peak debts, american consumers appetite to take more debt is weakened. US is printing dollars to avert economic collapse and causing further downfall of US dollar. This is pushing the crude higher and higher thus forcing US to divert a thrid of corn production to ethanol production.
Corn is consumed daily by americans and is also food for cattle. This pushed the costs of feeding cattle thus causing prices of chicken, beef and dairy products to rise.
Rising crude prices hit manufactureres, farmers and everybody alike and thus the food inflation.
Failure of Doha talks: Countries have to come together and continue where they left of. There is no alternative to sit and talk and succeed.
Expanding middle class in emerging markets:When demand increases, supply has to increase. If supply can’t meet the demand then prices rise.
I don’t see why suppliers are not ramping up production when there is an onslaught of demand?
India and China naturally want to stop exporting food grains for domestic consumption and that is what they are doing. Countries like Bangladesh which depend on Rice imports from India are sufferring.
What is the solution?
US should increase public transportaion system to meet its energy demands and curb rising use of GAS (petrol) by automobiles.
India and China should drop subsidies on crude for domestic consumption. This is causing enormous strain on our economy and is erroneously making millions to fell that they can afford buying cars.
Once the subsidy is done away with, only people who can afford will buy automobiles.
This is will result in drop in demand for crude and OPEC countries will fall in line to drop the crude prices.
Bush speech on food inflation: President Bush didn’t blame India and China for the food inflation. Contrary to that he complemented the phenominal growth of Indian middle class and an oppurtunity to increase production to meet the demand from rising middle class population.
When everybody said that diverting corn production to biofuel production caused food inflation, he wronged them and gave more reasons for food inflation.
Thanks
Filed under: Finance India, India blogs, Indian Bloggers , bio fules, bush speech, china, doha, ethanol, food inflation, India, middle class
