07 January 2011

Global Food Crisis, a Repeat of 2008?

KLCI is grappling up for a successful 4 days in a row this week, and perhaps today is the 5th day of record breaking level. However, I am concerned about the health and the sustainability of the market, after reading a report by Food and Agriculture Organization of the United Nations (FAO). And, one of the popular Mandarin Dailies highlighted the potential food crisis as its main topic today. Finance Malaysia did some analysis, and would like to comment on the issue which could be a hot topic for many nations very soon, including Malaysia.


In fact, international prices of most agricultural commodities have increased in recent months, some sharply. This has led to a level near to its peak in June 2008.

What causing the prices to increased?
  • worsening outlook for crops in key producing countries, which require large draw downs of stocks and result in tighter global supply and demand balances
  • of course, weakening USD, which continues to sustain the prices of nearly all commodities
  • continuous money pouring in for commodities investing too (spicing up speculations)
Fault of commodities investors?
Globally, investors are trying to hedge against inflation, trying to make profit as much as possible. These return hunger investors prompt investment banks to structure and roll-out commodities or resources fund, which invest in commodities related shares and futures. In fact, the world is trading according to the market price, which is the said futures contract. Consequently, commodities investors indirectly pushing up the prices. Are you one of those investors?

Source: FAO website
Repeat of 2008 global food crisis
Although food reserves are larger now after the 2008 lesson, a series of unexpected downward revisions to crop forecasts in several major producing countries pushes world prices to an alarming stage and at a much faster pace than in 2007/08.

As such, Finance Malaysia expects global food crisis is building its momentum now. A repeat of 2008 global food crisis will led us to experience the same scenario listed below, let's be prepared:
  • Surging oil price, etc petrol, soy oil, palm oil
  • Surging sugar price (people rushing to hypermarkets everyday)
  • Surging wheat price (subsequently bread, mee, kuey teow...)
  • Riot and demonstrations held weekly, if not daily
  • Governments struggles to contain inflation
Source: Various, FAO website

3 comments:

  1. is there any relation between raising SRR with the inflation rate??

    ReplyDelete
  2. Yes. SRR is one of the tools being used by Central Banks to contain inflation other than OPR rate. When SRR was increased, there will be lesser liquidity in banking system. Thus, banks will be more selectively to provide credits to borrowers. Thanks.

    You may refer the following link on SRR:
    http://financemalaysia.blogspot.com/2011/03/what-is-statutory-reserve-requirement.html

    ReplyDelete
  3. I came across this post whilst looking for bloggers talking about the current West Africa Food crisis and you make some very good points. We sympathise with the plight potentially being faced in Malaysia.

    If you or your readers are interested in making a donation to help those affected in West Africa please visit http://www.worldvision.org.uk/

    ReplyDelete

Finance Malaysia Blog appreciates your comment. Cheers!

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