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ETFsRule (99.94)

Rising Food Prices and the Revolutions in the Middle East

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February 21, 2011 – Comments (11)

First, I want to say that I agree with the generally-accepted idea that rising food prices are a huge problem for places like the Middle East, because the cost of food represents a large percentage of the average person's income in those countries. And I believe that food prices may have been the straw that broke the camel's back, in the sense that they acted as a catalyst for the uprisings that are now taking place. This certainly was not the only catalyst, but still a significant one.

Bloggers on various sites have been suggesting that QE2 is responsible for these rising food prices, and we can blame it all on Bernanke. I'm not a strong supporter of QE2 by any means, but the idea of blaming everything on Bernanke just seemed a little too easy and politically convenient... so I decided to do a little research to find the true reasons for the rises in food prices.

Information on food prices can be found on the FAO website. From the graphs on their homepage you can see that the rises in food prices began back in early 2007. They reached a peak in 2008, before dropping along with all other commodities during the economic crisis, and then increasing again in 2009-2010. But it is not a new problem, and it did not begin in 2010.

The 2008 spike in food prices has been studied in detail, and the FAO examined the causes for it in their 2008 report. The FAO passingly mentions US dollar weakness in their 2010 report, but they certainly do not identify it as a major contributor to the crisis. The causes that they identified in 2010 were pretty much identical to what they saw in 2008: increased demand from emerging markets, higher fertilizer prices, and unfavorable conditions for agriculture (floods, draughts, cyclones, etc).

Let's look at currencies. Many people don't realize that in 2010 the Egyptian Pound sharply decreased in value against the US dollar. If food prices look high right now in US dollars, just imagine how much worse it would be if you held Egyptian currency. So it seems that food inflation in Egypt has more to do with the Egyptian economy than it does with US policies. Emerging-market countries often have high inflation rates... that's not Bernanke's fault.

Another factor that compounded Egypt's problems was their loss of oil revenues. As the author explains in this article, the unrest in Egypt began at essentially the exact moment when their net oil exports dropped to zero. Suffice to say, I don't believe in coincidences.

11 Comments – Post Your Own

#1) On February 21, 2011 at 7:44 PM, lquadland10 (< 20) wrote:

now because of the un rest in mid east then oil will go higher. Food will go higher. I believe that you can try to find reasons. However. Sometimes the answers are a combination of everything including the FED>

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#2) On February 21, 2011 at 8:10 PM, Varchild2008 (84.64) wrote:

STRAWMAN ARGUMENT!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

No one is saying that rising food prices is SOLEY because of QE2... I do not know ANYONE suggesting that...

Glenn Beck, myself, and take your pick among any of the millions of conservatives in America were just pointing out how it is not helping the situation and that it is certainly contributing to rising food prices.

BENNY the B is saying that he started QE2 because he wants to jump start inflation.   And ever since and even before QE2....We have had inflation....

We have had QE1, remember?  And that inflated food prices and other necessities....

In a world in which we need DEFLATION we have a blow-hard working to boost Inflation..

That is our concern... There's no connecting the dots with the realities of the every day Grocery Store shoppers.  No one seems to care..... They all want to place the entire blame on Supply and Demand pretend that the Federal Reserve, the Federal Government, policies, regulations, and QE programs should just be ignored or at least talked down.

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#3) On February 21, 2011 at 8:13 PM, Varchild2008 (84.64) wrote:

Just to clarify....

Pretending as if Conservatives like us think QE2 is the only factor means pretending that we have not spoken out about

A)  Ethynol (corn) leading to fields devoted to Energy and not Food and certainly contributing to Corn Price inflation....

B)  California Agriculture grinding to a Halt to save fish smaller than Gold fish that are essentially Bait..  Sarah Palin spoke out about this...

Instead of allowing ANY FARMER to irrigate their FOOD CROPS we spent an entire farming season, recently, with California Famers growing NOTHING!!!!!! 

And yes.... That is a factor...

We have spoken out spoken out against any number of things begging for someone to deal with the situation with food prices and energy prices going up.

No one wants to listen to us... Just ignore us and then throw up STRAWN MAN arguments for any of our arguments you deem weakest.. ignoring everything else...

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#4) On February 21, 2011 at 8:21 PM, ETFsRule (99.94) wrote:

It's not a strawman at all. I got the idea for this blog after reading this article where the author says:

But to sum things up: Ben Bernanke's implementation of "QE2" has directly led to food inflation across the world. In many developing and poor countries (i.e. Egypt and elsewhere) food makes up a much larger percentage of an individual's income and is felt much more severely than in the U.S. That's my theory and I am sticking to it.

And I have seen several posters use similar logic here on TMF and several other sites, without giving any alternative explanations for the rise in food prices.

I await your apology.

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#5) On February 21, 2011 at 8:54 PM, checklist34 (99.73) wrote:

the anti bernanke folks really won't consider any argument suggesting that he isn't the anti-christ himself.  Its way beyond logic and more like a cult. A cult thats massively long commods on a historic scale to save themselves from "the bernanck".  

Whether this ends in a super bubble or another hedge-fund-bombing deflationary panic or something normal (a gradual drift out of commods into other investments) I don't know, but its certainly the play thats going to define returns over the next 1-5 yrs.

But the anti-bernanke guys aren't going to be persuaded by any amount of reason logic or discussion, its outlawed by the cult.

nice article, rec

 

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#6) On February 21, 2011 at 9:00 PM, Varchild2008 (84.64) wrote:

It is a Strawman!!!!

That article you bring up by no means suggests QE2 is entirely to blame for Food Prices going higher.  No one would think that.

You just chose to read the article as you saw fit to frame it in a bad light so you can attack it.

Easy to attack the article if you choose to interpret as "QE2 is entirely to blame for......unrest in Middle East."

That misses our argument which is far more complex than that.

And it misses entirely the statements around QE2 which have been over and over..the stated goal of Ben Bernanke for QE2 is to boost inflation.

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#7) On February 21, 2011 at 9:05 PM, Varchild2008 (84.64) wrote:

"Making things even worse is American policymakers' support and expansion of the idiotic ethanol mandates. "

Above statement is just 1 example where the author mentions something else as a factor than QE2.

And as for this idea that Anti-Ben Bernanke is a cult or something....

Hardly....  My issue is 100% based on policy.

I do not see what Printing billions of dollars of Monopoly money is somehow sound, intelliegent, monetary policy here.

In a perfect world we would have a Country that is not in debt and has no need to Print Cash just to pay for things.

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#8) On February 21, 2011 at 11:28 PM, monksnake (38.58) wrote:

There is no inflation.

Bernanke says commodity prices are rising because of higher demand in emerging economies.  See, what you don't understand is the more economically advanced a society gets, the hungrier they get.  That explains the cost of corn and wheat going up. 

It's makes perfect sense!!!!!

 

 

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#9) On February 22, 2011 at 1:33 AM, awallejr (82.72) wrote:

Well if a bunch of dictators and monarchs, who have horded their given country's wealth, are getting the boot, I say good riddance.  Let's call him Ben the Liberator then.

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#10) On February 22, 2011 at 8:47 AM, ETFsRule (99.94) wrote:

monksnake:

That's not Ben's idea, he is just following what the experts in the field (the FAO) have said. Increased demand is just one of many factors, but I'll try to look a little deeper and find the reasons behind the increased demand for food in emerging markets.

Actually I think you may be onto something with your comment: have you ever noticed that the average American is a lot fatter than the average person in Egypt, China, India, etc? :-)

Varchild2008

As for corn being used as ethanol, actually I agree with you that it has had a large impact on food prices, especially in poor countries where grains make up a much larger percentage of their overall food consumption. And I agree that we should stop using corn for ethanol.

Again, this isn't a political argument. I don't follow any political pundits so I have no idea what they have been talking about lately. I am just trying to clear up a misconception that I have been seeing quite a bit on various websites over the past few days.

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#11) On February 22, 2011 at 1:40 PM, FreeMarkets (97.61) wrote:

" I'm not a strong supporter of QE2 by any means, but the idea of blaming everything on Bernanke just seemed a little too easy and politically convenient" --ETFSRule

When someone ignores "easy" & "convenient" I can only assume that person is NOT a politician.

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