Why are food prices rising?

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You may have heard in the news that global food prices are rising. You may have even seen this a little first hand in stores and businesses in North America. If you live in Canada, you will soon see a 4%-5% rise in the cup of coffee at Tim Horton’s. So what’s the deal with increasing food prices all of a sudden?

The answer is actually a whole bunch of factors that have combined with bad timing to force this increase. Weather is playing a dominant role in this price increase. Droughts and larger than normal rainfall in various parts of the world that happen to be crop growing regions are one of the main reasons we are experiencing food price increases. Many experts are saying that we will see about a 5%-7% increase in food prices by the end of the year in North America. It’s tough to tell if this is accurate since things like the weather are very difficult to predict.

The other main reason why food is going up in price is because countries like China and India that have huge populations are beginning to see their citizens climb out of poverty for the first time. This is not a sudden phenomenon like the weather events of the last several months, but the rise of large developing countries is a slow and steady factor to an increase in food price. Due to the more predictable nature of this factor however, it allows companies and governments the ability to counter it in various ways.

The third factor to the jump in food costs is the jump in the price of oil. Much of this current spike in oil has to do with the Arab revolt in the Middle East and north Africa. Unlike the rising middle class of India and China, the Arab revolt is likely not a long term trend which bodes well for the price of oil in the longer term.

The good thing about this food price increase is that it likely will not last too long. The weather problems are already showing signs of going away, oil will eventually go back down at some point and although China and India are still growing, the sudden spike in food prices should subside. Keep in mind, the uprising in the Arab world did not occur during this food price increase by coincidence. The price increase started because of bad weather and continues due to Middle East news. Food prices in poverty stricken countries are even more important than in advanced countries. The next 12 months will be important to track in the prices of food.