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Supermarkets cash in as food prices soar

Food price inflation is running at a faster rate in Britain than in the rest of Europe – and supermarkets, which control around three quarters of grocery sales, are accused of driving prices up faster than is justified by rising costs, to protect their profits.

According to the Organisation for Economic Co-operation and Development, food prices rose 6.3% in the year to the end of January, compared with an average of 2.8% for the EU and 2.6% across the 34 countries that make up the OECD.

Strangely enough, investment bank UBS says UK consumers are suffering most from the pressures of food inflation. "Prices are rising in excess of justifiable cost increases," said Paul Donovan and Larry Hatheway, co-authors of a recent report. "The UK stands out as having the broadest range of food price increases."

World prices are also soaring. The UN Food and Agriculture Organisation's (FAO's) food price index averaged 236 points in February, a record, up 2.2% from January and rising for the eighth month in a row. The index highlights how food prices have taken off in alarming fashion in the last three years. In 2000 the index stood at 90 and did not break through 100 until 2004.

As one analyst put it: “What is extraordinary about this trend is that for more than two decades before 2008, there were no spikes of this magnitude. To be entering a second such spike within three years suggests that something has fundamentally changed in the global food situation.”

It was a more than doubling in the price of bread that put food beyond reach for many that helped trigger the wave of revolts in the Middle East and North Africa. Fearful that they will spread, governments around the world are assessing the likely political impact of food prices.

Campaigning organisations like the World Development Movement have joined the simplistic “blame the bankers” chorus, accusing them and hedge funds of speculating in food. But this is just one of the many interacting factors involved in the global crisis which can be summarised as peak soil and peak oil:

The FAO is organising a series of seminars in an attempt to keep the lid on the rising anger. “FAO feels it is essential that countries consider their policy options and steer away from decisions that might exacerbate the situation," said deputy director-general Changchui He. "During the last food crisis, the situation was aggravated when some countries imposed export restrictions or engaged in panic buying."

But their solution is for more of the same. "Governments should focus on mitigating the impact of high food prices on the poor and at the same time need to take steps that favour investment in agriculture," he added. But the present framework is clearly unsustainable. A global network of farmers, processors, and distributors, planning the sustainable production of food according to the needs of the population and not profit has to be the way forward.

Gerry Gold
Economics editor
9 March 2011

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