Albert Edwards is worried about cereal.
Specifically, whether you’ll be able to afford it going forward.
I jest. Humor is a prerequisite for covering Albert’s weekly missives, so I feel somehow derelict in my editorial duties if I don’t give him and readers an opportunity to chuckle at the outset.
That said, the subject of this week’s piece from Edwards — food scarcity — is anything but funny, and kudos to Albert for drawing attention to it.
Earlier this month, the United Nations’ food agency said food prices rose a sixth month, with the index touching the highest in nearly a half-dozen years.
The Food and Agriculture Organization’s gauge tracks monthly changes in cereals, oilseeds, dairy products, meat and sugar. As you can see from the figure (above), it’s rising pretty sharply.
For those interested in the specifics, the price of vegetable oil exploded nearly 15% higher, a move apparently attributable to palm oil. The index for cereal jumped 2.5% sequentially, and was up 20% YoY.
You’ll note that the last big surge came around a decade ago, and Edwards reminds you that if you wanted to (and he wants to) you could blame the Fed for the surge and, indirectly, for the Arab Spring.
“Many economists believe the Fed’s QE2 was the primary cause for the 2010-11 bubble in food prices which contributed to the social unrest and ensuing revolutions in many Arab countries,” Edwards said Thursday. (For what it’s worth, Ben Bernanke pseudo-famously denied the Fed was responsible for surging food prices at the time.)
Edwards went on to say that “while most economists’ attention is now focused on the impact of the Fed’s QE on buoyant equity and industrial commodity prices, we should also watch the unfolding surge in food prices very closely — and with trepidation.”
I won’t argue that. If easy monetary policy in the US does drive up commodity prices as part of a pro-cyclical trade, it will be important to monitor the effects of that, especially vis-à-vis countries where the populace is both poor and starving, related phenomena which could be exacerbated in the event the price of food continues on an upward trajectory.
Notably, November’s rise in the index mentioned above was the largest since 2012.
Edwards made a critical point in his piece. Thanks in part to the pandemic, food insecurity isn’t just a frontier economy issue.
“Even in the richest country in the world, food poverty has become a real problem during this pandemic,” he remarked, adding that “with people already angry about rising inequality, a surge in global food prices could easily trigger social unrest – everywhere.”
Yes, indeed it could. And that’s just another manifestation of the dynamics discussed in these pages on too many occasions to count over the past nine months.
In the US context, for example, the pandemic not only laid bare the fragility of the world’s largest economy, but also exposed the overlapping nature of the myriad inequities endemic to American society.
Needless to say, no family should experience food insecurity in the US, the richest country in the history of the world. And yet, over the summer, the Census Bureau’s “experimental” Household Pulse Survey showed tens of millions of Americans didn’t have enough to eat.
Pictures and videos from across the country continued to depict lines at food banks as Congress struggled to pass a new virus relief package.
Of course, as Edwards also noted Thursday, “commodities have been in a secular bear market for a long while now.”
Some believe the transition to the kind of monetary-fiscal “partnerships” seen across developed economies in the wake of the pandemic could bolster commodities going forward, especially if the global vaccination push is successful in restoring economic activity. Lingering disruptions in supply chains could conceivably add to upward price pressure on some goods.
“As industrial commodities break upwards fueled by the cyclical recovery and extremely loose monetary policies worldwide, keep a very close eye as to whether we see a repeat of the 2010/11 surge in food prices,” Albert went on to say, before cautioning that “on the 10th anniversary of the start of the Arab Spring, and with poverty having already been made much worse by the pandemic, another food price bubble could well be the straw to break the very angry camel’s back.”