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End of cheap food - Sept 5

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Global growing problem of wheat production

Tom Stevenson, UK Telegraph
The record price of bread's main constituent hints at a wider potential crisis with huge repercussions.
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The famously nostalgic advert for Premier Foods' Hovis brand harked back to a gentler age of local people eating local food. Yesterday's 8p hike in the price of the iconic loaf is a stark reminder that these days our daily bread is less about a baker's lad pushing his bike up a cobbled street than a ride on the roller-coaster of global agricultural commodity markets.

The second sharp rise in the cost of Hovis this year is the flip side of the commodity trader's handsome profits on the floor of the Chicago Board of Trade. The price of the wheat used to bake the bread has doubled since April, a headache for food producers and consumers alike, but a potential fortune for investors who saw soaring crop prices in time.

Premier's chief executive Robert Schofield announced the rise with a warning: "We'll be very surprised if general bread prices don't go up because the pressures upon us all are the same."

On the other side of the trade, Sean Corrigan, chief investment strategist at Diapason, a commodities trader, said: "This should be a reminder of how tight we run some of these agricultural commodities. The days of effortless and easy surpluses are behind us."

With a squeeze at both ends of the supply/demand equation, those surpluses, and the rock-bottom prices that went with them, don't look like coming back.

Yesterday India, the second biggest consumer of wheat, waded into the global market to try to buy 50pc more of the grain than suppliers were offering. Last year, the subcontinent swung dramatically from exporting surplus wheat to importing it.

Elsewhere, Russia said it was considering curbs on exports to keep a lid on prices at home. Australia, the third-biggest exporter of wheat, warned that its output this year might be 18pc less than a previous government estimate. A second year of drought means Aussie farmers will again miss out on sky-high farm-gate prices.

...If the demand side looks stretched, the supply picture is not much brighter. According to Diapason, most good-quality agricultural land is already in production. What's worse, about 35pc of that land has been seriously damaged by the intensive agriculture practised since the Second World War.

Humus, the fertile part of soil, takes up to 500 years to regenerate, too long for an impatient world. Perhaps 30pc of all agricultural land could be unusable within 15 years, it has been estimated.

That means that the "green revolution" of the 1970s and 1980s, which saw yields soar, is over. Between 1970 and 2000 the world's deserts expanded by 160m hectares - an area about equal in size to seven Great Britains.

...We're going to be in a period of food inflation that we probably haven't seen since the early 1990s," Schofield concludes.

In Britain, where we have been spoiled by years of cheap food, paying a bit more for the weekly shop will be an irritant. But in the poorer parts of the world, where the price of chapatis and tortillas really matters, rising food costs look altogether more serious.
(5 September 2007)
The most recent of a series of excellent articles that have been appearing in the Telegraph. -BA


Days of cheap food are over, say suppliers as ingredient costs soar

Simon Bowers, Guardian
Superstore groups prepare to stomach higher prices because of far east demand and biofuel incentives
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Supermarket pledges to drive down the price of staple goods and help cash-strapped shoppers looked increasingly vulnerable last night after Britain's biggest food manufacturer insisted even the largest superstore groups would have to stomach higher prices from suppliers that are struggling with steep rises in ingredient costs.

Premier Foods, the group behind Branston Pickle, Oxo, Mr Kipling and Quorn, said a "systemic change" in world ingredient markets, with "violent rises" in many commodities, had heralded a new era, bringing to a close almost 15 years of relatively stable, low inflation.

Finance director Paul Thomas predicted general food ingredient inflation could reach "somewhere as high as 4% to 5%" next year.

Chief executive Robert Schofield said: "Over the past 30 years the cost of food as a proportion of disposable income has come down from 30% to less than 10%. It is going to edge back up ... I think we've got two or three years of inflation at the very least."

Of central concern to Premier, which acquired Hovis bread maker RHM earlier this year, has been a doubling in the price of wheat.
(5 September 2007)


Moscow considers wheat export ban

Javier Blas, Financial Times
Russia is considering a ban on cereals exports in a move that exacerbates fears that wheat prices, already at an all-time high, could surge further on reduced supplies, European cereal traders said.

Russia, the world's fifth largest wheat exporter, is concerned about rising local bread prices and inflation ahead of legislative elections in December.

Cereals traders said Moscow was contemplating either a partial ban on wheat exports or to introduce a prohibitive export tariff to rein in foreign sales. A decision could be made in the first two weeks of September, the traders added.

Moscow's concern comes as other food-exporting countries, such as Ukraine and Indonesia, try to rein in foreign sales amid rising prices.
(2 September 2007)


Mountains of wheat grow as price rises

Nicholas Riccardi, Los Angeles Times
Thanks to a hard winter, Colorado has a record harvest with high value. But there's just no way to get all that grain to market.
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The good news: After a winter of multiple blizzards created hardships for residents and killed thousands of livestock in Eastern Colorado, the region is experiencing a record wheat harvest with high market value.

The bad news: There's no way to get it all to market.

"It's the right kind of problem to have," said state Agriculture Commissioner John R. Stulp, a farmer himself with excess wheat sitting in bins on his property. "But it would be insult on top of injury to have a good crop and lose part of it."

Grain-elevator operators have overflow wheat piling up on the ground -- as much as 10 million bushels statewide -- which is vulnerable to rain and windstorms. "It makes you nervous," said Steve Bahnsen, general Paoli Farmers Co-op manager, who estimates he has $1.9 million worth of wheat -- 300,000 bushels -- piled in front of his elevator.

The problem, officials said, is that Colorado has suffered through a lingering drought that depressed wheat yields for the last decade. Grain-hauling outfits went bankrupt and rail lines didn't schedule as many cars to run to the high plains.

This summer's bounty follows -- and in large part is due to -- the brutal winter, which left behind much-needed moisture. Now there isn't enough transportation to take the wheat bonanza to the Gulf or Pacific coasts, where 80% of it is usually shipped for export.
(2 September 2007

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