Editorial

As soon as the world economies start to show signs of bouncing back from the terrible slump they experienced in the last two years, something happens that threatens further economic recovery. The latest bleak news for the world economy came in December when food prices shot up to record highs.

The seriousness of this latest threat was articulated by Abdolreza Abbassisan, an economist working with the Food and Agricultural Organisation, based in Rome, who told journalists: “We are entering a danger territory. There is still, unfortunately, the potential for grain prices to strengthen on the back of a lot of uncertainty. If anything goes wrong with the South American crop, there is plenty of room for them to increase”.

The last time the world faced a similar surge in food prices was in 2008. But there are differences between what happened then and what is happening now. In 2008, increases were propelled by spiralling fuel prices, when oil sell at $140 a barrel, and increases in fertiliser prices. The situation today is more complex as there are a number of factors driving prices up.

Demand for food commodities from prospering Chinese and Indian middle classes is increasing. The poor crop in Russia last year has meant European wheat prices have doubled; wheat and sugar supplies are expected to be affected in Australia, parts of which are being hit by devastating floods; there are also winterkill problems for cereals grown in the northern hemisphere as a result of the exceptional cold weather this winter; drought threatens crops in some South American countries; oil is forecast to hit $100 a barrel soon, even if this is substantially lower than the price of oil in most of 2008.

In an open economy like ours it is a question of time before this country too is affected by the spiralling food costs. Malta imports practically all its food and even if the food bill today represents a smaller portion of the expenditure of many households, the impact on the spending power of a big number of families will be significant.

It is encouraging to hear the comments of representatives of the Pig Breeders’ Cooperative and the Bakers’ Cooperative. Their plans to delay any increases as much as possible shows their sensitivity to the need of protecting consumers, especially in the context of tough competition from foreign suppliers.

One also hopes weather conditions behind most of the causes of the food inflation improve and that supplies begin to build up again.

But the long-term prospects for food prices remain bleak as increasing demand, especially from prospering emerging economies, will drive prices up unless supply can increase significantly. The FAO food price index that in 2004 stood at just 100 points has now reached 215.

At the local level, there is not much the government can do to control this imported inflation. It can, however, make new efforts to keep in check other locally-generated inflationary pressures caused mainly by the imperfections that exist in this small market. The move to open a farmers’ market is such an example that most consumers have welcomed because it has brought down the prices of locally produced fruit and vegetables.

A well-functioning and equipped Consumer’s Association can also contribute immensely. More vigilance by the various regulators to stop suppliers of goods and services from exploiting their dominant position can help to mitigate the effect of spiralling food prices in the coming months.