World Food Prices at an All-Time High Because of Subsidies

World food prices are at an all-time high, announced the FAO this week. Many experts are jumping to conclusions that this indicates a global food shortage on the horizon.

These numbers do not herald a food shortage. This simply illustrates what happens when food becomes a subsidized commodity. Analysts irritated that corn and sugar subsidies raise the price of those commodities are not merely thinking about Americans who will have to pay more; economic events are necessarily global, and subsidies in one country raise prices for that commodity for the entire world.

Look at the numbers. Food price is determined by examining what commodities go into a “food basket”: grains, milk, sugar — all the things that people eat, with enough diversity to include all of the bulk products that reflect all of the world’s food choices.

The two highest commodities are sugar and oilseeds. Only one of the commodity jumps, milk, rose because of cattle illness in parts of Asia and South America. The business of cattle is subsidized, but it’s stable, save illness or unforeseen events.

The world’s highest food prices ever are because governments have their fingers so deep in the business of edible commodities that there is no real market to speak of.

I wrote:

Food price index means very little out of context. Here’s The Economist’s index of all commodities (including food). Food is up, but everything is up, really.

Commodity prices don’t even take service industries into effect — and service dollars are a huge part of the world’s economy. We in the US are familiar with the importance of service dollars in the US economy (running on so much subsidy), but many developing nations also rely heavily on service industries, like tourism.

Don’t panic, but do appreciate this further illustration of cause and effect. If governments start paying into food groups with seemingly-unlimited funds, people will have to pay more to eat. If governments keep their hands off, food will be more easily traded.