Agriculture experts: Food costs could keep rising for years
By Ofri Ilani, Haaretz Correspondent and Rina Rozenberg, Lior Dattel and Barr Hayoun, TheMarker
Last update - 08:48 28/04/2008

The current rise in food prices is the most serious in the last century and shows no sign of slowing down any time soon, according to agricultural economist Prof. Yakir Plessner of the Hebrew University's Faculty of Agriculture in Rehovot. A colleague, Professor Ayal Kimhi, foresees the crisis causing political shock waves in sensitive areas of the world. These will in turn lead to higher oil prices and further increases in food prices.

"We see the first signs of political instability throughout the world," Kimhi says. "Poor populations are the most vulnerable. We are talking about more than a billion people who live on less than a dollar a day. The political instability can lead to unpredictable results. Nigeria, for example, is an important oil producer sitting on a political powder keg. A blowup there could adversely affect the price of oil and make the food price crisis worse," Kimchi says.

Plessner says food prices will moderate only if "farmers in the United States plant huge areas of land with grain. But that will take a few years. There is no short-term solution." To get farmers to cooperate, Plessner says, the U.S. must stop subsidizing corn grown for the production of fuel ethanol.

Kimhi, however, believes that in the long term technology will meet demands and notes that there are also countries that are under-producing, like Russia and Ukraine.

What is causing the price-hikes?

Kimhi: "The main cause is demand for food in certain countries, like China and India, where the population's standard of living is growing quickly and people are changing their consumption habits. This has increased demand for products like wheat and corn, which these countries import. But the main factor responsible for the hikes is the cost of energy. Petroleum and its by-products are very important for modern agriculture. Chemical fertilizers are a petroleum by-product, and of course fuel is needed for agricultural machinery. The result is a rise in production costs.

"In addition, the demand for biofuels, as an alternative to oil, is rising," Kimchi says, "and they are becoming more expensive. In the past year, one third of the corn grown went for energy production instead of the food market."

Who profits from the crisis?

Plessner: "The U.S. profits from the higher food prices, but it could profit much more if it did not set aside cornfields for ethanol production. This policy of the U.S. is disgusting. On the one hand it decreases the production of seeds for food; those farmers could be raising seeds for food and it would bring down the prices. On the other hand, ethanol production does nothing for the earth.

Could the crisis have been foreseen?

Plessner: "I don't think anyone one could have predicted that the price of fuel would reach $120 a barrel, and as a result no one could have foreseen that the price of fertilizers would rise so much, and in its wake, the price of food."

What steps are countries taking to keep prices down?

Plessner: "India has placed limits on the export of rice, but this will increase the problem because it has created a sense of abundance there. Farmers will get low prices for their crops on the world market, which will block signals from the world market to increase production. When prices are high, farmers grow more."

Is Israel losing or benefiting from the crisis?

Plessner: "Israel can only lose from it. This is because it imports almost all of its seed, both for human and animal consumption. Nevertheless, the relative proportion of these foods in Israel's total imports is not great. It is the poorer people, for whom food is a substantial part of their overall consumption, who are hurt. I think that at the present prices, Israel should grow more wheat. You can grow wheat over large areas without irrigation and in the Negev you can irrigate with treated wastewater."

Kimhi: "When the price of a product goes up, those who buy lose and those who sell, profit. Israel imports seed, and therefore it loses. Consumers are directly hurt - for example because of the [rise in the] price of rice, and also because the seeds go for animal feed. When wheat is more expensive, steak will be more expensive."

Local rice prices jump 65 percent

The global rice crisis is hitting Israeli consumers in the pocket, with prices rising between 33 percent and 65 percent Sunday in the Super Sol supermarket chain, the largest in the country, in accordance with the price update of local sugar and rice company Sugat.

The second-largest supermarket chain, Blue Square, has not yet updated its prices but is expected to raise them soon. Advertisement

Sugat said demand for rice increased by hundreds of percent over the weekend, "because everyone heard about the global shortage and the expectation of a price increase and ran to the stores," said Sugat CEO David Franklin. A senior source in the retail field confirmed that rice sales late last week were three times higher than on peak sale days.

However, concern over a rice shortage in Israel has dissipated. Super-Sol has lifted its brief two-package per customer restriction, saying that "in light of the rise in prices in the world and in Israel, the Super-Sol chain wanted to prevent merchants from buying at the chain's stores in order to accumulate stock and make a fortune at the expense of the customer."

"There is no rice shortage in the world, and there is no food shortage," said Gideon Ben Nun, CEO of Shekel-AGIO Risk Management & Financial Decisions. "There is only an atmosphere of panic."

Meanwhile, the prices of products based on wheat and corn, as well as cooking oils, are expected to rise shortly by up to 10 percent, sources in the food industry said.

Price-controlled bread will be more expensive by between 10 percent and 15 percent within three months. In addition, coffee prices are expected to rise by between 5.5 percent and 8.5 percent and candy prices are due for a 5-percent hike, on average.

The expected price hikes come on top of an average rise of about 13 percent in hundreds of products over the past year.

Restaurants say they will have to raise their prices by about 10 percent in order to compensate for the increased cost of ingredients.

However, some major food manufacturers - including Osem and Tnuva - say they do not expect their prices to go up any time soon.

Original article: Ha'aretz
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