News / Economy

Soaring Food Prices Tied in Part to Oil Prices

Demonstrators shout slogans as they hold steel plates during a rally to protest food prices in New Delhi February 23, 2011.
Demonstrators shout slogans as they hold steel plates during a rally to protest food prices in New Delhi February 23, 2011.

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The United Nations warns that global food prices are rising at alarming levels.  The Food and Agriculture Organization says the cost of staples such as cereals, meat and dairy products has risen for eight straight months to reach a new high in February.  The U.N. agency warns food prices could spike even higher because of the unrest in the Middle East and North Africa.

Food prices are at their highest levels since the FAO began monitoring prices two decades ago.  The agency's senior grain economist, Abdolreza Abbassian, says except for sugar, the price of basic food commodities such as wheat, meat and dairy products has risen steadily since June.

"We are still in historic peaks. The February prices unfortunately rose even further, so whether you calculate it on real basis, inflation corrected, or nominal, the food prices, which are a measure of international prices for basic food commodities, have reach a new high, yes," Abbassian said.

Higher food prices were among the triggers for protests in Egypt and Tunisia.  

But Abbassian says higher oil prices due to the continuing turmoil in Libya are making matters worse.

"One of the strong linkages between the food and the energy sector is through biofuels, so when the oil prices are very high, there is definitively more incentive to produce more biofuels and that means using more food crops to produce them," said Abbassian.

Economists say that's what happened in 2007 and 2008, when high oil prices prompted greater demand for biofuels such as ethanol.  

The international aid group Oxfam says millions of people around the world are sliding into poverty as they struggle to pay for basic foods.  The organization is urging the international community to curb oil price speculation and reverse the demand for biofuels.

Until that happens, Abbassian warns food prices will continue to rise.

"Obviously the longer these [oil] prices remain high, the more we have to think that it could have a spillover effect into the grain sector especially in the coming weeks and months," Abbassian said.

Abbassian says a major difference between the current situation and the food crisis of 2008 is that the price of rice, a staple for half the world’s population, has risen less than four percent since last year.

Wheat prices, on the other hand, are up 60 percent, while corn, a major ingredient for biofuels, has risen 93 percent since last year.

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