Stagflation is a term describing an economy with both stagnation, which is basically recession and inflation at the same time.
It's a tricky situation for governments because the monetary tools available cannot solve both problems at the same time, and more so, using one tool to relieve the effects of one condition exacerbates the other.
Raising interest rates is believed to exacerbate stagnation, and the primary stagnation-fighting tool of lowering interest rates will exacerbate inflation.
According to Mr. Rodger Malcolm Mitchell, there is one, and only one, solution to stagflation which is to raise interest rates to cure inflation and increase deficit spending to cure stagnation.
Will the solution stated here be the course of action governments partake?
2008年7月3日 星期四
2008年2月12日 星期二
China Struggles to Avoid Past Mistakes in Controlling Food Prices
By Guy Newey
With food prices facing growing upward pressure, economists are using the term 'agflation' to refer to the country's soaring agricultural commodity prices
Rocketing food prices in China have sown deep concern among the communist leadership, ever wary of social unrest, as they fumble to control inflation without repeating past mistakes, analysts say.
Overall inflation in China is running at a 10-year high -- around 6.9 percent in November year-on-year, official statistics show.
Inflation is now being driven almost exclusively by increases in the price of food, in particular the staple meat, pork, which has spiked 60 percent year-on-year.
Prices have faced even greater upward pressure in recent weeks, as severe weather has crippled the country's transport system at the time demand is greatest, over Lunar New Year, the major annual holiday when millions of people return home.
A report by Credit Suisse said 10 percent of China's farming land has been affected by the extreme cold, and 1 percent could see a complete loss of crops and vegetables.
Price increases have been seen in food items ranging from cooking oil to apple juice, as China's growth and global demand creates what economists have dubbed "agflation" referring specifically to rises in prices of agricultural commodities.
Analysts say authorities in Beijing are becoming increasingly concerned about the prospect of food prices getting out of hand, but add that the problem is not yet approaching the levels that led to widespread popular dissatisfaction almost a decade ago.
"They [the central government] are increasingly nervous about it," said Andy Rothman, Shanghai-based China Macro-Strategist for CLSA. "But it is a long, long way from the inflation problems before 1989."
Last month, the National Development and Reform Commission announced tightened supervision of prices for grain, edible oils, meat, poultry, eggs, feed and other items in both wholesale and retail markets.
This followed the announcement in late December that from Jan. 1 the government would slap taxes ranging from 5 percent to 25 percent on exports of a range of products including wheat, corn, rice and soybeans to try and ensure stable food supplies at home.
The actions appeared to be stoked by memories of the widespread protests that resulted from the government's clumsy handling of food price controls that led to inflation of around 50 percent in the summer of 1988.
Public anger about inflation prompted the demonstrations that the following summer morphed into anti-government protests and the death at the hands of the army of hundreds, possibly thousands, of unarmed civilians in central Beijing.
"Most of the price rises were for staple foods, thereby causing the maximum economic pain to the maximum number of people," Joe Studwell wrote in his 2002 book The China Dream.
Vincent Chan, head of China research for Credit Suisse, cited another change in recent months, saying people were now expecting price rises, an often self-fulfilling situation that leads to even higher market prices.
"If you look at the statistics, then China's inflation problem is simply a food inflation problem," he said. "In the past, we have not really had a problem of inflation expectation, [but] this year we have already seen that. And that normally means that prices will rise."
Rothman said pork price inflation was only a short-term problem, and predicted prices will start to fall back later this year.
"This is a supply problem. In 2006, pork prices had a 10-year low. There was not any incentive for farmers to raise more pigs. This was made worse by blue-ear disease, which stopped supply when demand was rising," he said.
Rothman said although demand had risen by between 5 percent and 7 percent over the past few years, no sudden jump had provoked the current huge increases and that China's position as the world's biggest producer of pork meant it would be able to control supply.
The other major factor in Chinese inflation, cooking oil, was more complicated, he said, as 60 percent is imported.
"The major contributor to the rise is US ethanol policy and there is little the Chinese can do about that," he said.
Subsidies in the US have seen a major switch in land use to grow crops for fuel, rather than food, prompting worldwide increases in some staple foods.
The UN's Food and Agriculture Organization (FAO) said in its annual Food Outlook report that the US will increase its maize crop specifically for ethanol use by 50 percent this year, at the expense of acreage for other food crops, in particular wheat.
Wheat stocks are at their lowest level for 25 years, according to the FAO.
Maize, or corn, is the main crop used in grain-based ethanol. The Chinese government has said it will not grow crops for energy use.
Rothman said the price control announcements had been overplayed as CLSA had surveyed seven of the 12 companies the government had reportedly said would be subject to possible restrictions and found that none had received specific instructions.
"I think what they [Chinese authorities] are doing is what governments always do -- try and talk down inflation expectations," he said. "I think it is a clever move, whereas introducing price controls would be pretty stupid."
Nevertheless, the FAO said in October that China was expected to slash its exports of cereals from 7.7 million tonnes in 2006 and last year to 6.2 million tonnes last year and this year. At the same time it would probably increase imports to 10.1 million tonnes from 9.3 million tonnes.
Both imports and exports could be expected to rise in the wake of the recent weather disaster that could have an adverse medium-term impact on domestic output and supply.
China imported 32.2 million tonnes of oilcrops, including corn and soybeans, in 2006 and last year, which the FAO said was expected to rise to 37.3 million tonnes in 2007 to 2008, with exports expected to fall to 1.3 million tonnes from 1.5 million.
Rothman said there had been anecdotal evidence of subsidies to poor rural areas, which are the hardest hit by any price fluctuations, which if accurate could indicate the government's willingness to take action to keep a lid on food prices and prevent any hint of social unease.
With food prices facing growing upward pressure, economists are using the term 'agflation' to refer to the country's soaring agricultural commodity prices
Rocketing food prices in China have sown deep concern among the communist leadership, ever wary of social unrest, as they fumble to control inflation without repeating past mistakes, analysts say.
Overall inflation in China is running at a 10-year high -- around 6.9 percent in November year-on-year, official statistics show.
Inflation is now being driven almost exclusively by increases in the price of food, in particular the staple meat, pork, which has spiked 60 percent year-on-year.
Prices have faced even greater upward pressure in recent weeks, as severe weather has crippled the country's transport system at the time demand is greatest, over Lunar New Year, the major annual holiday when millions of people return home.
A report by Credit Suisse said 10 percent of China's farming land has been affected by the extreme cold, and 1 percent could see a complete loss of crops and vegetables.
Price increases have been seen in food items ranging from cooking oil to apple juice, as China's growth and global demand creates what economists have dubbed "agflation" referring specifically to rises in prices of agricultural commodities.
Analysts say authorities in Beijing are becoming increasingly concerned about the prospect of food prices getting out of hand, but add that the problem is not yet approaching the levels that led to widespread popular dissatisfaction almost a decade ago.
"They [the central government] are increasingly nervous about it," said Andy Rothman, Shanghai-based China Macro-Strategist for CLSA. "But it is a long, long way from the inflation problems before 1989."
Last month, the National Development and Reform Commission announced tightened supervision of prices for grain, edible oils, meat, poultry, eggs, feed and other items in both wholesale and retail markets.
This followed the announcement in late December that from Jan. 1 the government would slap taxes ranging from 5 percent to 25 percent on exports of a range of products including wheat, corn, rice and soybeans to try and ensure stable food supplies at home.
The actions appeared to be stoked by memories of the widespread protests that resulted from the government's clumsy handling of food price controls that led to inflation of around 50 percent in the summer of 1988.
Public anger about inflation prompted the demonstrations that the following summer morphed into anti-government protests and the death at the hands of the army of hundreds, possibly thousands, of unarmed civilians in central Beijing.
"Most of the price rises were for staple foods, thereby causing the maximum economic pain to the maximum number of people," Joe Studwell wrote in his 2002 book The China Dream.
Vincent Chan, head of China research for Credit Suisse, cited another change in recent months, saying people were now expecting price rises, an often self-fulfilling situation that leads to even higher market prices.
"If you look at the statistics, then China's inflation problem is simply a food inflation problem," he said. "In the past, we have not really had a problem of inflation expectation, [but] this year we have already seen that. And that normally means that prices will rise."
Rothman said pork price inflation was only a short-term problem, and predicted prices will start to fall back later this year.
"This is a supply problem. In 2006, pork prices had a 10-year low. There was not any incentive for farmers to raise more pigs. This was made worse by blue-ear disease, which stopped supply when demand was rising," he said.
Rothman said although demand had risen by between 5 percent and 7 percent over the past few years, no sudden jump had provoked the current huge increases and that China's position as the world's biggest producer of pork meant it would be able to control supply.
The other major factor in Chinese inflation, cooking oil, was more complicated, he said, as 60 percent is imported.
"The major contributor to the rise is US ethanol policy and there is little the Chinese can do about that," he said.
Subsidies in the US have seen a major switch in land use to grow crops for fuel, rather than food, prompting worldwide increases in some staple foods.
The UN's Food and Agriculture Organization (FAO) said in its annual Food Outlook report that the US will increase its maize crop specifically for ethanol use by 50 percent this year, at the expense of acreage for other food crops, in particular wheat.
Wheat stocks are at their lowest level for 25 years, according to the FAO.
Maize, or corn, is the main crop used in grain-based ethanol. The Chinese government has said it will not grow crops for energy use.
Rothman said the price control announcements had been overplayed as CLSA had surveyed seven of the 12 companies the government had reportedly said would be subject to possible restrictions and found that none had received specific instructions.
"I think what they [Chinese authorities] are doing is what governments always do -- try and talk down inflation expectations," he said. "I think it is a clever move, whereas introducing price controls would be pretty stupid."
Nevertheless, the FAO said in October that China was expected to slash its exports of cereals from 7.7 million tonnes in 2006 and last year to 6.2 million tonnes last year and this year. At the same time it would probably increase imports to 10.1 million tonnes from 9.3 million tonnes.
Both imports and exports could be expected to rise in the wake of the recent weather disaster that could have an adverse medium-term impact on domestic output and supply.
China imported 32.2 million tonnes of oilcrops, including corn and soybeans, in 2006 and last year, which the FAO said was expected to rise to 37.3 million tonnes in 2007 to 2008, with exports expected to fall to 1.3 million tonnes from 1.5 million.
Rothman said there had been anecdotal evidence of subsidies to poor rural areas, which are the hardest hit by any price fluctuations, which if accurate could indicate the government's willingness to take action to keep a lid on food prices and prevent any hint of social unease.
2008年1月27日 星期日
Is This The End of Cheap Food?
By Alex Reton, of THE OBSERVER, EDINBURGH, SCOTLAND
People in developed nations have grown used to low-cost food, but that is about to change as global forces drive huge increases that could threaten international stability.
Outside a Co-op supermarket in Edinburgh this month, I met three sisters, all doing their shopping for this weekend. In their baskets were tins, mainly -- Ambrosia creamed rice and minted peas. They were peering at stickers and examining labels with the look of hardened skeptics.
"Terrible, just terrible," said Betty Pryde, at 82 the eldest of the three. "Look at the price of these eggs."
They were free range, and cost £1.28 (US$2.50) for six -- 60 percent more than in most supermarkets a year ago.
"Everything's gone up," she said.
The sisters live apart but they often shop together, pooling their state pensions. Jean, 78, the youngest, said she doesn't bother looking at the prices, she just gets what she needs. Her older sisters looked at her as if she had just said something naughty.
"Oh no, you've got to watch the prices -- bread, milk, everything, it's all going up," said Nan, 79.
And they all agreed their weekly shopping bill was up a good 10 percent on last year, although the cost of gas and electricity was more of a worry to them.
"It's the price of oil, isn't it? And the bad weather?" said Nan, musing over the reason for the price rises.
"The shops, they all like a profit well over the score," Jean said.
"Aye, well, I must get on," Betty said.
Clearly this was the wrong moment for a long chat.
"I want a bit of fish for my supper, and I imagine that's gone through the roof, too," Betty said.
When they had gone, the store was as empty as a church on a Monday. But the discount grocery store Lidl, a block away, was throbbing. Poundstretcher next door was packed, as was the discount frozen foods store, Farm Foods. And no wonder -- food prices are rising faster than they have at any time since the mid-1970s. The middle class in Britain has barely noticed, but here in one of the poorer corners of Scotland, people are feeling the pain.
Everyone in the stripped-down warehouse of Lidl, where the posters promise, simply enough "40 percent cheaper!" had a story to tell.
Shubnam Rasoul, 23, out shopping with her husband, Shahid, and their two small children, said: "I never buy anything for myself any more. And I never buy anything that's full price -- it's all in the sales."
Shahid, who works in a Leith butcher's shop, said that the price of their lamb is up 10 percent since last month.
"We spend £200 a month now on groceries for the family," he complained. "Probably 25 percent more on a year ago. It's frightening."
While a liter of orange juice is £0.57 in Lidl, it sells for £0.99 in the Co-op. Such products, and staple foods like eggs, bread, frozen peas, butter and cheese have seen price rises of between 20 percent and 30 percent in mainstream supermarkets. Mysupermarket.co.uk, which collates UK supermarket prices daily, puts the overall rise last year at 12 percent. That means the average British family's shopping bill has gone up by £750 a year.
DIFFERENT WORLDS
From Lidl, I went to another food shop, only a kilometer away, but a planet away in every other way. Occupying part of a terrace in the grandeur of Edinburgh's New Town, Herbie's is a fittingly stylish grocer/cafe -- the sort of place where they don't put price labels on the goods in the chill cabinet because, presumably, no one is particularly bothered. If you do ask, half a liter of milk here costs £0.75 -- in Lidl it's £0.32.
I was introduced to five obviously middle-class Edinburgh women, the fundraising committee of the PTA for one of the city's private schools. They were having a meeting over cappuccinos.
Did any of them know how much half a liter of supermarket milk cost, I asked. £0.80 at the upmarket supermarket Waitrose, said one confidently, and the others nodded. And how much has the price gone up? Not much: it's about the same, they all agreed. In fact a half a liter of milk costs £0.40 at the supermarket, and is up by 15 percent to 20 percent on a year ago.
Two of the women -- none wanted to be named -- didn't think food prices had gone up noticeably. But the other three weren't so sure. They'd seen a difference in their weekly shopping bills.
"Tesco [supermarket] deliver," one said. "We're vegetarians and it's usually the same order. And it's usually £180. But it's been £200 lately."
Another laughed: "My husband's certainly noticed we're spending more."
"Do you know," the third said, "I have actually started looking at labels in the supermarket. Prices per kilo, and so on."
Everyone smiles -- how absurd it seems.
It's going to be interesting, said James Walton, chief economist with the UK food retail industry's education body, IDG.
CHANGING HABITS
UK shoppers aged under 50 have so far never experienced food-price inflation. Essentially, throughout most Britons' lifetimes, food has become cheaper. But, in December, the inflation rate (by the government's preferred consumer price index, the CPI) was 2.1 percent, while for all foods it was 5.9 percent. Habits will change, although it's unlikely we're going to see Soviet-style lines at empty shelves.
However, label-watching may become a habit for those Edinburgh women, because -- and all the analysts agree on this, if nothing else -- this is only the beginning.
Walton's organization is funded by the supermarket industry, whose bosses are, in public, largely in denial about the significance of the price rises. But Walton, himself, forecasts two further years of similar increases, at least.
All the indicators, the prices of every food staple, are on the up -- wheat doubled in price at one point last year.
"It's something the industry has expected and is thus, hopefully, a manageable cycle," he said.
"No hunger riots. But we have enjoyed food prosperity for a long time, and we're seeing the end of that," he said.
Others offer an even more bleak assessment. Jacques Diouf, head of the UN's Food and Agriculture Organization, spoke recently of a "very serious crisis" brought about by the rise in food prices and the rise in the oil price. Various global economic bodies are forecasting rises of between 10 percent and 50 percent over the next decade.
There have already been riots about food prices in Mexico, West Bengal, Morocco, Senegal and Yemen, although not in Edinburgh. But the factors behind the price rises in Leith are exactly the same as those in Mexico, or in China -- where, on Jan. 16, the government introduced price controls on dairy products, meat, vegetables and cereals. And while food price inflation hit 18 percent last year in China, there's no good reason why they should not do that here.
In fact, there are a lot of reasons why they should.
INFLATION FACTORS
There have been four chief drivers of food price inflation in the last two years.
The first is the huge rise in oil prices: US$100 a barrel means food that is four-times as expensive to plant, irrigate, harvest and transport as it was six years ago. Some commodities brokers are now betting on oil going to US$200 a barrel within a decade.
The second factor is the climate: drought, hurricanes and floods around the world last year made for terrible harvests -- from Australia to the Caribbean and the UK.
The third is the massive rise in the price of the staple-food commodities: wheat, maize and soya. This has been partly driven by speculation in the markets, partly by the demand for crops to turn into fuel. Ethanol, a diesel-type fuel made from plants, must bear a lot of the blame.
Since US President George W. Bush announced a rush to corn-based ethanol it's done well for US corn farmers -- 20 percent of whose harvest, subsidized by the government, went into fuel tanks rather than flour mills this year.
Bush's taste for corn-based ethanol is based partly on trying to break the US's reliance on Middle East oil suppliers, and partly on a (largely misplaced) faith in its ecological credentials. (Its increasingly voluble critics claim that growing grain and then transforming it into ethanol requires more energy from fossil fuels than ethanol generates.)
And, as a result of the vast tracts of farmland now being given over to corn for ethanol production, the price has risen sharply. Hence the tortilla riots in Mexico, last summer, over the price rise in the corn flour that makes the pancakes.
Some claim that there is now a war between the 850 million chronically hungry of the world and the 800 million motorists -- all fighting for the same food crop.
It's a pretty unbalanced battle: The maize to fill a tank for a 4x4 would feed a family of four for three months.
In October the UN's spokesman on famine, Jean Ziegler, called the biofuel boom "a crime against humanity". And as the Economist magazine recently noted: "The 30 million tonnes of extra corn going to ethanol this year amounts to half the fall in the world's overall grain stocks."
This month, after a mass protest at the price of soya beans in Indonesia (which rose because of the shortage of corn and other crops to supply the biofuel industry), Ashok Gulati, director at the International Food Policy Research Institute said: "It's finally a trade-off between filling stomachs and filling diesel tanks in cars and trucks."
NUTRITION TRANSITION
But the last, and perhaps the most disturbing factor in the food price rise, is the financial boom in India and China. Around the world, and through history, people have eaten more meat as they have become richer. This is called the nutrition transition and it's now happening, very quickly, in the two most populous nations on the planet.
Hundreds of millions more people are now rich enough to eat meat compared with 10 years ago, with meat consumption in China more than doubling over the past 20 years. Meat also consumes food resources in a shockingly inefficient way: It takes 8kg of grain to produce 1kg of beef, and 4kg for pork. But each kilo of grain may need a tonne of water. And fuel oil is needed throughout the process, to fertilize the grain, pump water and to transport it.
Water and oil will both be in short supply this century.
None of this is a surprise to Tim Lang, professor of food policy at London's City University, and an adviser to the British government through the Sustainable Development Commission.
"I've been expecting this for two years," he said. "The food system is entering a period of very significant restructuring, the first since the years after the Second World War. We may look back at the second half of the last century as an era of cheap food. It'll be like the Hundred Years' War, as we were taught it in school: A seminal moment in human history that's gone and will not return."
That food is -- for the rich world, at least -- astonishingly cheap, is undeniable. The average British household spends 13 percent of its income on food -- for our grandparents that figure would have been 30 percent.
IN A PICKLE
In Lidl in Edinburgh, I met a 75-year-old retired nurse with a basket of vegetables -- broccoli, leeks, courgettes -- along with apples, vinegar and a tin of condensed milk.
"I make jam and I pickle things," she explained. "My daughter thinks I'm mad, but it's a habit. I got married in 1948 just after the war, when things were still rationed. We appreciated everything we got to eat. Now, we've got used to having too much. We throw so much away. People eat unwisely -- they don't plan, they just shop."
But could there be positive aspects to the food price rises? Some environmentalists believe so, including Tim Smit, founder of the Eden Project, near St Austell in Cornwall, England.
"Food is ridiculously cheap and we need to pay more -- for our environment to be healthy, to cut down on carbon emissions and give more income to our farmers," he said.
"It's said that 30 percent of all food produced in Britain is thrown away. We may be getting back to seeing what the real price of food is, and that is healthy for producers and for society," he said.
So is there a morally preferable price level for food, at which people will value it more, and waste less? Raj Patel, a political economist at Cornell University in the US, and author of Stuffed and Starved -- on the politics of global food supply -- said that allowing the market to set prices to make people behave better is not the answer.
"There are greens who are crowing that the price of food going up is going to benefit the environment and help the small producer," he said. "But the benefit of the rises is going to the contractors and the commodity brokers -- not to the farmers or to developing world economies."
"Nor are supermarkets innocent victims of price rises. [Two in the UK] Sainsbury's and Tesco have recorded double-digit growth in profits last year," he said.
BUSINESS AS USUSAL
The supermarkets insist there's no problem. Tesco's finance director, Andrew Higginson, said that tales of rampant inflation, based on one or two products, are complete nonsense. When I asked Sainsbury's about the reported 26 percent rise in the cost of a basket of its food, it said that its prices overall had actually only risen by 1 percent in the last year.
As an illustration they sent me a list of five items that had become cheaper, including 200g of Sainsbury's mixed olive hummus which was 20 percent down.
Dismissing alarmist predictions, British Retail Consortium's head, Kevin Hawkins, said last week that intense competition between food retailers was continuing to keep prices down, with retailers absorbing much of the impact of increasing costs themselves.
But as the situation stands today, at least a third of the world -- including the populations of China, Russia and India -- have government-imposed price limits on their foods.
"That's how it's going," Lang said. "You can't wriggle out of the facts. There are water shortages, climate change, energy price rises, population demographics, waste. We can't go on eating meat the way we do -- the economics of it just won't add up."
He's not expecting food riots in Britain -- yet.
"But we're entering a long period of restructuring, and politicians will have to get involved," he said. "For years, successive governments have got used to food prices going down. The `leave it to Tesco' policy has dominated. But that's over. After half a century, food security is on the political agenda again."
And so, you imagine, is hunger.
People in developed nations have grown used to low-cost food, but that is about to change as global forces drive huge increases that could threaten international stability.
Outside a Co-op supermarket in Edinburgh this month, I met three sisters, all doing their shopping for this weekend. In their baskets were tins, mainly -- Ambrosia creamed rice and minted peas. They were peering at stickers and examining labels with the look of hardened skeptics.
"Terrible, just terrible," said Betty Pryde, at 82 the eldest of the three. "Look at the price of these eggs."
They were free range, and cost £1.28 (US$2.50) for six -- 60 percent more than in most supermarkets a year ago.
"Everything's gone up," she said.
The sisters live apart but they often shop together, pooling their state pensions. Jean, 78, the youngest, said she doesn't bother looking at the prices, she just gets what she needs. Her older sisters looked at her as if she had just said something naughty.
"Oh no, you've got to watch the prices -- bread, milk, everything, it's all going up," said Nan, 79.
And they all agreed their weekly shopping bill was up a good 10 percent on last year, although the cost of gas and electricity was more of a worry to them.
"It's the price of oil, isn't it? And the bad weather?" said Nan, musing over the reason for the price rises.
"The shops, they all like a profit well over the score," Jean said.
"Aye, well, I must get on," Betty said.
Clearly this was the wrong moment for a long chat.
"I want a bit of fish for my supper, and I imagine that's gone through the roof, too," Betty said.
When they had gone, the store was as empty as a church on a Monday. But the discount grocery store Lidl, a block away, was throbbing. Poundstretcher next door was packed, as was the discount frozen foods store, Farm Foods. And no wonder -- food prices are rising faster than they have at any time since the mid-1970s. The middle class in Britain has barely noticed, but here in one of the poorer corners of Scotland, people are feeling the pain.
Everyone in the stripped-down warehouse of Lidl, where the posters promise, simply enough "40 percent cheaper!" had a story to tell.
Shubnam Rasoul, 23, out shopping with her husband, Shahid, and their two small children, said: "I never buy anything for myself any more. And I never buy anything that's full price -- it's all in the sales."
Shahid, who works in a Leith butcher's shop, said that the price of their lamb is up 10 percent since last month.
"We spend £200 a month now on groceries for the family," he complained. "Probably 25 percent more on a year ago. It's frightening."
While a liter of orange juice is £0.57 in Lidl, it sells for £0.99 in the Co-op. Such products, and staple foods like eggs, bread, frozen peas, butter and cheese have seen price rises of between 20 percent and 30 percent in mainstream supermarkets. Mysupermarket.co.uk, which collates UK supermarket prices daily, puts the overall rise last year at 12 percent. That means the average British family's shopping bill has gone up by £750 a year.
DIFFERENT WORLDS
From Lidl, I went to another food shop, only a kilometer away, but a planet away in every other way. Occupying part of a terrace in the grandeur of Edinburgh's New Town, Herbie's is a fittingly stylish grocer/cafe -- the sort of place where they don't put price labels on the goods in the chill cabinet because, presumably, no one is particularly bothered. If you do ask, half a liter of milk here costs £0.75 -- in Lidl it's £0.32.
I was introduced to five obviously middle-class Edinburgh women, the fundraising committee of the PTA for one of the city's private schools. They were having a meeting over cappuccinos.
Did any of them know how much half a liter of supermarket milk cost, I asked. £0.80 at the upmarket supermarket Waitrose, said one confidently, and the others nodded. And how much has the price gone up? Not much: it's about the same, they all agreed. In fact a half a liter of milk costs £0.40 at the supermarket, and is up by 15 percent to 20 percent on a year ago.
Two of the women -- none wanted to be named -- didn't think food prices had gone up noticeably. But the other three weren't so sure. They'd seen a difference in their weekly shopping bills.
"Tesco [supermarket] deliver," one said. "We're vegetarians and it's usually the same order. And it's usually £180. But it's been £200 lately."
Another laughed: "My husband's certainly noticed we're spending more."
"Do you know," the third said, "I have actually started looking at labels in the supermarket. Prices per kilo, and so on."
Everyone smiles -- how absurd it seems.
It's going to be interesting, said James Walton, chief economist with the UK food retail industry's education body, IDG.
CHANGING HABITS
UK shoppers aged under 50 have so far never experienced food-price inflation. Essentially, throughout most Britons' lifetimes, food has become cheaper. But, in December, the inflation rate (by the government's preferred consumer price index, the CPI) was 2.1 percent, while for all foods it was 5.9 percent. Habits will change, although it's unlikely we're going to see Soviet-style lines at empty shelves.
However, label-watching may become a habit for those Edinburgh women, because -- and all the analysts agree on this, if nothing else -- this is only the beginning.
Walton's organization is funded by the supermarket industry, whose bosses are, in public, largely in denial about the significance of the price rises. But Walton, himself, forecasts two further years of similar increases, at least.
All the indicators, the prices of every food staple, are on the up -- wheat doubled in price at one point last year.
"It's something the industry has expected and is thus, hopefully, a manageable cycle," he said.
"No hunger riots. But we have enjoyed food prosperity for a long time, and we're seeing the end of that," he said.
Others offer an even more bleak assessment. Jacques Diouf, head of the UN's Food and Agriculture Organization, spoke recently of a "very serious crisis" brought about by the rise in food prices and the rise in the oil price. Various global economic bodies are forecasting rises of between 10 percent and 50 percent over the next decade.
There have already been riots about food prices in Mexico, West Bengal, Morocco, Senegal and Yemen, although not in Edinburgh. But the factors behind the price rises in Leith are exactly the same as those in Mexico, or in China -- where, on Jan. 16, the government introduced price controls on dairy products, meat, vegetables and cereals. And while food price inflation hit 18 percent last year in China, there's no good reason why they should not do that here.
In fact, there are a lot of reasons why they should.
INFLATION FACTORS
There have been four chief drivers of food price inflation in the last two years.
The first is the huge rise in oil prices: US$100 a barrel means food that is four-times as expensive to plant, irrigate, harvest and transport as it was six years ago. Some commodities brokers are now betting on oil going to US$200 a barrel within a decade.
The second factor is the climate: drought, hurricanes and floods around the world last year made for terrible harvests -- from Australia to the Caribbean and the UK.
The third is the massive rise in the price of the staple-food commodities: wheat, maize and soya. This has been partly driven by speculation in the markets, partly by the demand for crops to turn into fuel. Ethanol, a diesel-type fuel made from plants, must bear a lot of the blame.
Since US President George W. Bush announced a rush to corn-based ethanol it's done well for US corn farmers -- 20 percent of whose harvest, subsidized by the government, went into fuel tanks rather than flour mills this year.
Bush's taste for corn-based ethanol is based partly on trying to break the US's reliance on Middle East oil suppliers, and partly on a (largely misplaced) faith in its ecological credentials. (Its increasingly voluble critics claim that growing grain and then transforming it into ethanol requires more energy from fossil fuels than ethanol generates.)
And, as a result of the vast tracts of farmland now being given over to corn for ethanol production, the price has risen sharply. Hence the tortilla riots in Mexico, last summer, over the price rise in the corn flour that makes the pancakes.
Some claim that there is now a war between the 850 million chronically hungry of the world and the 800 million motorists -- all fighting for the same food crop.
It's a pretty unbalanced battle: The maize to fill a tank for a 4x4 would feed a family of four for three months.
In October the UN's spokesman on famine, Jean Ziegler, called the biofuel boom "a crime against humanity". And as the Economist magazine recently noted: "The 30 million tonnes of extra corn going to ethanol this year amounts to half the fall in the world's overall grain stocks."
This month, after a mass protest at the price of soya beans in Indonesia (which rose because of the shortage of corn and other crops to supply the biofuel industry), Ashok Gulati, director at the International Food Policy Research Institute said: "It's finally a trade-off between filling stomachs and filling diesel tanks in cars and trucks."
NUTRITION TRANSITION
But the last, and perhaps the most disturbing factor in the food price rise, is the financial boom in India and China. Around the world, and through history, people have eaten more meat as they have become richer. This is called the nutrition transition and it's now happening, very quickly, in the two most populous nations on the planet.
Hundreds of millions more people are now rich enough to eat meat compared with 10 years ago, with meat consumption in China more than doubling over the past 20 years. Meat also consumes food resources in a shockingly inefficient way: It takes 8kg of grain to produce 1kg of beef, and 4kg for pork. But each kilo of grain may need a tonne of water. And fuel oil is needed throughout the process, to fertilize the grain, pump water and to transport it.
Water and oil will both be in short supply this century.
None of this is a surprise to Tim Lang, professor of food policy at London's City University, and an adviser to the British government through the Sustainable Development Commission.
"I've been expecting this for two years," he said. "The food system is entering a period of very significant restructuring, the first since the years after the Second World War. We may look back at the second half of the last century as an era of cheap food. It'll be like the Hundred Years' War, as we were taught it in school: A seminal moment in human history that's gone and will not return."
That food is -- for the rich world, at least -- astonishingly cheap, is undeniable. The average British household spends 13 percent of its income on food -- for our grandparents that figure would have been 30 percent.
IN A PICKLE
In Lidl in Edinburgh, I met a 75-year-old retired nurse with a basket of vegetables -- broccoli, leeks, courgettes -- along with apples, vinegar and a tin of condensed milk.
"I make jam and I pickle things," she explained. "My daughter thinks I'm mad, but it's a habit. I got married in 1948 just after the war, when things were still rationed. We appreciated everything we got to eat. Now, we've got used to having too much. We throw so much away. People eat unwisely -- they don't plan, they just shop."
But could there be positive aspects to the food price rises? Some environmentalists believe so, including Tim Smit, founder of the Eden Project, near St Austell in Cornwall, England.
"Food is ridiculously cheap and we need to pay more -- for our environment to be healthy, to cut down on carbon emissions and give more income to our farmers," he said.
"It's said that 30 percent of all food produced in Britain is thrown away. We may be getting back to seeing what the real price of food is, and that is healthy for producers and for society," he said.
So is there a morally preferable price level for food, at which people will value it more, and waste less? Raj Patel, a political economist at Cornell University in the US, and author of Stuffed and Starved -- on the politics of global food supply -- said that allowing the market to set prices to make people behave better is not the answer.
"There are greens who are crowing that the price of food going up is going to benefit the environment and help the small producer," he said. "But the benefit of the rises is going to the contractors and the commodity brokers -- not to the farmers or to developing world economies."
"Nor are supermarkets innocent victims of price rises. [Two in the UK] Sainsbury's and Tesco have recorded double-digit growth in profits last year," he said.
BUSINESS AS USUSAL
The supermarkets insist there's no problem. Tesco's finance director, Andrew Higginson, said that tales of rampant inflation, based on one or two products, are complete nonsense. When I asked Sainsbury's about the reported 26 percent rise in the cost of a basket of its food, it said that its prices overall had actually only risen by 1 percent in the last year.
As an illustration they sent me a list of five items that had become cheaper, including 200g of Sainsbury's mixed olive hummus which was 20 percent down.
Dismissing alarmist predictions, British Retail Consortium's head, Kevin Hawkins, said last week that intense competition between food retailers was continuing to keep prices down, with retailers absorbing much of the impact of increasing costs themselves.
But as the situation stands today, at least a third of the world -- including the populations of China, Russia and India -- have government-imposed price limits on their foods.
"That's how it's going," Lang said. "You can't wriggle out of the facts. There are water shortages, climate change, energy price rises, population demographics, waste. We can't go on eating meat the way we do -- the economics of it just won't add up."
He's not expecting food riots in Britain -- yet.
"But we're entering a long period of restructuring, and politicians will have to get involved," he said. "For years, successive governments have got used to food prices going down. The `leave it to Tesco' policy has dominated. But that's over. After half a century, food security is on the political agenda again."
And so, you imagine, is hunger.
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