12 Gallons Of Milk

It’s a broken record, but so is everything these days.

Global food prices rose again in October, the latest read on the UN’s gauge showed. Last month’s increase was the largest since May.

The index now sits near the highs registered a decade ago, when surging costs contributed to social unrest, forcing the Bernanke Fed to defend itself against allegations that US monetary policy was part of the problem (figure below).

October’s monthly increase was the third straight. The list of problems is a mile long. For example, extreme weather, the high cost of shipping and labor scarcity all played a role in upending food supply chains.

Meanwhile, the energy crunch curtailed operations at large greenhouses which, in turn, drove up the cost of fertilizer. The end result is higher prices and all the uncertainty that goes along with not knowing how much food might cost six months hence.

“Nitrogen-based fertilizers, the most important crop nutrients, are made through a process dependent on natural gas or coal,” Bloomberg’s Elizabeth Elkin and Tatiana Freitas wrote, in an informative piece published Wednesday. “Those fuels are in extremely tight supply, forcing fertilizer plants in Europe to cut back on production or even close [while] China has curbed exports to ensure enough domestic supply.”

Abdolreza Abbassian, a senior economist at the UN’s Food and Agriculture Organization (which produces the index shown above), said the market has “factored in” supply-demand tensions, but expressed concern about next year’s production.

The breakdown (figure below) shows the vegetable oil index accelerating rapidly.

The UN said Thursday that labor shortages in Malaysia are contributing to rising palm oil prices, while an increase in global demand and surging crude are also “lending support” to vegetable oil values.

A separate article published this week warned that everything from “pizza crusts to French baguettes to Asian noodles to African couscous” is likely to get more expensive as wheat prices hit multi-year highs (figure below).

Clearly, the burden of higher prices falls disproportionately on frontier and emerging economies, where policymakers’ capacity to alleviate the strain is limited. In locales where governments already suffer from rolling credibility crises, food insecurity can be particularly destabilizing.

But soaring food costs are also a headache for developed markets, where central bankers risk stumbling into a tragicomic outcome.

In addition to the irony inherent in the fact that post-financial crisis Fed policy served to widen the very same wealth gap policymakers are now intent on closing, one of the greatest ironies of the Fed’s tweaked mandate (aimed as it is at engineering a more inclusive labor market and fostering a more egalitarian version of American capitalism) could be that the Fed ends up exacerbating global inequality via surging commodity prices.

“Global food insecurity falls heaviest on lower income, importing nations, who spend a far greater share of their income on food than the richer ones,” Rabobank’s Michael Magdovitz and Michael Every wrote back in April. “The Fed would play an ironic role in this process even as it embraces fighting poverty and inequality.”

And while almost no one literally starves in advanced economies, higher grocery bills can be a financial death knell for families at risk of falling through the proverbial cracks.

On Thursday, social media had a bit of fun at CNN’s expense, after the network attempted to highlight the burden imposed on families by higher milk costs. “A gallon of milk was $1.99. Now it’s $2.79,” Brianna Keilar said, quoting the segment in a tweet. “When you buy 12 gallons a week times four weeks, that’s a lot of money.”

Keilar didn’t seem amused when Americans responded by asking how it’s possible for a family (any family) to consume 50 gallons of milk per month.

“Did you watch the piece?”, she snapped, when one netizen did the math on the way to exclaiming, “That’s a cup and a half every waking hour!”

“In addition to their two biological children, they have five adopted kids and are fostering one,” Keilar said.

I suppose I’d gently note that, as ever, Americans are missing the point. For countless millions around the world, such debates are utterly meaningless.

“Must be nice,” said the villager, when he heard Americans are arguing on social media about whether it is or isn’t possible to consume 12 gallons of milk in a single week.

Then he sighed, told his oldest son to protect his sisters and mother, and set off down a road patrolled by warlords, religious extremists and apex predators to fetch clean drinking water for the day.