The Queensland floods will hit food prices hard we're told. It's just another peak on an upward gradient based on the simple principle of supply and demand.
From 2001 to 2009 the area of agricultural land in Australia fell by 10 percent, to 409 million hectares. The area of irrigated land fell 32 percent to 1.8 million hectares. At the same time, the population of Australia went from 19.5 million to 22.2 million --- a 14 percent increase. In effect each we went from 23.3 hectares of arable farming land per person, down to 18.5 hectares, a fall of 21 percent, all in the space of eight years.
That helps to explain why in the last decade food prices in Australia have gone up 42 percent, considerably higher than the consumer price index (up 32 percent, including food).
For the mercenary shopper who wants what's cheapest the answer is simple, surely? If lack of land is forcing the cost of Aussie goods up in price, buy from overseas. And with a strong dollar you'd think now was the time to do it. Wrong!
Since 2000 the Australian dollar has almost doubled in value against the US dollar. If there was no such thing as inflation, in theory you'd expect that would mean imports would have halved in price over that period, while export prices would have doubled.
Well export prices have certainly been on the up, thanks to the dollar. According to the ABS International Trade Price Indexes â€" the latest of which was released last Friday --- they're 41 percent up over the decade. The fact that it's not a lot higher shows how famers have had to cut margins to compete.
But what of imports --- they must have come down in price surely? Well, across all categories the price of all imports fell 16 percent over the decade (as you'd expect), but the price of food imports actually increased 5 percent. So imagine how much worse food prices would be if the Aussie dollar was back where it was ten years ago?
Still, a 5 percent increase is nothing when overall we're paying 42 percent more for our food. That's why the value of imported food has basically doubled in the last decade --- particularly fish and vegetables.
So irrespective of a favourable exchange rate, and even before we were hit by floods, food prices were on a strong march in an upward direction. And it's a worldwide trend. In ten years the United Nations composite food index has risen 133 percent.
Of course there have been doomsayers predicting an imminent food crisis since the Club Of Rome published its report "Limits to Growth" back in the early '70s. Some of their predictions have been countered by yield improvements and the like, but their basic premise still stands --- unlimited consumption and growth on a planet with limited resources cannot go on forever. Yet, how do you change it without questioning some of the basics of free market capitalism?
- ABS Australian Farming in Brief 2010 (pdf)
- ABS International Merchandise Imports (Dec 2010)
- ABS Consumer Price Index (Sep 2010)
- ABS International Trade Price Indexes
- More Mouths, Less Food - how Australia's domestic food production is not keeping pace with population growth.
- A High Dollar Is All Pain, No Gain - how a strong dollar is not reflected in lower retail prices
- 22 million Australians today - if you thought it was getting a bit crowded, here's why!
Read more By The Numbers articles by Phil Dobbie here.