The Cabinet has approved an increase in subsidy on the traditional Maltese loaf from Lm680,000 to over Lm900,000 a year. This decision was in response to the spiralling rise in global food prices that are hitting fresh records on a regular basis.
So what's happening in the global agriculture markets?
Since last January, the price of corn rose by 60 per cent, oats and rough rice by 40 per cent, soybean by 50 per cent, while wheat rocketed by a massive 145 per cent!
This hike is the result of four factors: A surge in global food demand; adverse weather; rising oil prices and a rise in the supply of biofuel.
Factor 1: Since 2002, the combined GDP of the 24 largest emerging markets has doubled, while the average per capita income has climbed by nearly 14 per cent a year. While this is clearly a success story, it is also a tale of higher demand for agricultural products. As families get richer, they can buy meat and dairy products more often. The consumption of milk in China has multiplied four fold in just one year.
This and other demands have meant a leap in the global price of 46 per cent for milk and 60 per cent for powdered milk between last November and April this year. The same applies for meat. The result? In China, beef consumption has shot up by 26 per cent since 2000 and pork by 19 per cent. In India, where much of the population is vegetarian, chicken consumption has almost doubled since 2000. This led to a higher demand for grains, since seven kilos of feed go into every kilo of beef!
Factor 2: Bad weather affects agricultural markets negatively. The world is experiencing the first effects of climate change. Last year, the drought in Australia led to a 20 per cent drop in wheat exports. Wheat prices have surged to a record, breaking for the first time, through the $9 a bushel mark. Only 15 months ago, the price was $4.2 a bushel!
Recent flooding in China has destroyed 5.5 million hectares of wheat and rapeseed while an abnormally dry season across northern Europe threatens grain yields. July flooding in the UK has damaged vegetable and grain crops and poor harvests for peas and broccoli are expected around Christmas.
In early August, the German federation of milk producers announced hefty price rises for milk, yoghurt, cheese and butter. Though milk products in Germany account for only 1.4 per cent of the average shopping basket, the lively debate will create "perceived inflation".
Two weeks ago, Canada, the world's second largest wheat exporter, warned output might be almost 20 per cent below last year's levels. Result: In France, the price of the traditional baguettes went up by seven per cent.
Factor 3: Fields are ploughed by machinery which runs on fuel. Higher production means an increase in energy consumption. Energy costs do not come cheap.
Higher food safety standards translate in better and safer product packaging. Most packaging is plastic, which is made of oil, and common plastics like polypropylene cost up to 70 per cent more than they did in 2003.
Higher production costs can be partially offset by greater operational efficiency while producers can reduce their margins to limited levels.
Factor 4: With oil prices hovering around $80 a barrel, new forms of energy extracted from environment-friendly products have led to a rise in the supply of biofuel. Instead of drilling for oil and cutting oil reserves, companies are turning to agricultural products such as corn for producing ethanol, which is a greener fuel compared to the traditional means.
According to the law of demand and supply, lower supply and constant demand will lead to a price hike. This is what is happing in the corn sector. Supply of corn for food purposes dipped, pushing prices up by 60 per cent in two years. Result: In Mexico, the price of the traditional corn tortillas is up by 50 per cent!
The world is feeling the effects of this new testing scenario which will probably remain unchanged for the foreseeable future.
Malta is not immune to these developments. On the contrary, our insularity and size make our country's position even trickier. The challenge for the government will be steering the country through these times by intervening where necessary to protect the interests of producers and processors on one hand, and those of consumers on the other.
Mr Pullicino is Minister for Rural Affairs and the Environment.