Libyan crisis inflates fuel and food prices, says UN

Gallons of milk on a supermarket shelf.

The price of dairy products have skyrocketed as oil prices have made production more expensive. (Photo Credit: CC BY-SA/James Rintamaki/Flickr)

As a result of the crisis in Libya, the already high food prices worldwide will likely be pushed even higher, reports CNN Money. A report by the United Nations Food and Agriculture Organization indicates that the food price index, which measures the price of a basket of food commodities, was up 2.2 percent in February. Currently, the index is at its highest point since it was created in 1990.

Prices up for most food commodities

While sugar prices were slightly lower in February, prices for cereal, dairy products, meat and nearly every other food commodity rose significantly. According to the U.N. Food and Agriculture Organization, U.S. consumers should expect the price of cereal to remain high throughout 2011, as inventories of wheat and coarse grains are low, and demand has remained high. Compared with February 2010, the cost of exporting grains was up 70 percent this February.

Oil prices pushed up by unrest in Libya

The price of a barrel of oil has exceeded $100 for the first time since fall 2008 – a by-product of violence in Libya that shut down oil production. As a result, U.S. drivers have paid 25 cents more per gallon of gasoline on average over the past 10 days, indicates the U.S. Energy Information Administration. This does not bode well for global food prices, said FAO director David Hallam in a statement.

“Unexpected oil price spikes could further exacerbate an already precarious situation in food markets,” writes Hallam. “This adds even more uncertainty concerning the price outlook, just as plantings for crops in some of the major growing regions are about to start.”

Jeet Dutta, an economist at Moody’s Analytics, sees no uncertainty when it comes to the link between high oil prices and high food prices. The costs of food production and transportation cannot be discounted.

“Energy is a big part of the cost bucket in food production,” Dutta told CNN. “Retail prices lag behind commodities, so consumers haven’t felt the full extent of recent increases.”

Food exporters rebuild stockpiles, tighten supply

Even as global harvests expand, exporters are tightening the reins on such commodity supplies as corn, wheat and soybeans. This chokes global supply, which in turn raises prices. Global financial services company UBS AG projects that corn will reach $8.30 per bushel, a 15 percent jump over Wednesday’s closing price, while wheat will rise to $10 per bushel (a 23 percent increase) and soybeans to $15 per bushel (7.6 percent higher).

High food commodities have pushed 44 million people into poverty since June 2010, said World Bank President Robert Zoellick. According to World Bank data, those 44 million join the more than 900 million people globally who go hungry on a daily basis.

Sources

Bloomberg

CNN Money

U.S. Energy Information Administration

Strife in Libya and the impact on fuel prices

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