As at the time of writing, Trinidad and Tobago is celebrating the Men's 4x400m Relay team and Lalonde Gordon with our two bronze Olympic medals as well as our other conquerors who have represented us so well in cycling, swimming, marksmanship and track and field.
I'm keeping my fingers crossed that we would have added at least one more medal by the time this is published.
The London Olympics certainly has been an enjoyable affair and I can't remember when last Trinbagonians were so collectively patriotic.
One interesting factoid is that only 1.4 per cent of an Olympic gold medal is actually made with gold. Of course the true value of the medal isn't the material it is made with but the accomplishment it represents.
In the world of finance gold has historically been the safe haven commodity of choice, especially in times of uncertainty; as it is considered a hedge against inflation and economic disruptions. But today I want to focus on other commodities that may not be considered a store of wealth but are certainly as or even more valuable than any precious metal, that is the food commodities.
Food price inflation here at home has been an astounding 24.1 per cent for the year and continues to be the main driver of headline inflation. Unlike other items of expenditure, food is a necessity for all of us. Of course we can be selective as to what items we consume but the reality is that the inputs and cost of so many food items are based on the availability and price of agricultural commodities such as corn, sugar, soyabeans, oats, rice and wheat. These grains are inputs or feedstock for other food items, from processed foods to even meat.
Over the last five years, the world economy has endured two major upheavals in food prices and now with the drought in the Midwest – United States, which is the farming belt of the US and one of the most significant food producing regions in the world, we can expect the prices of grains and agricultural commodities to soar.
The Food and Agriculture Organisation of the United Nations (FAO) reported that global food prices surged six per cent in the month of July driven by the sharp increases in grain and sugar prices. The FAO Food Price Index, which measures the monthly change in the international prices of a basket of food commodities, rose in July after three months of decline.
"The severe deterioration of maize crop prospects in the United States following extensive drought damage pushed up maize prices by almost 23 per cent in July," the FAO said in a statement, referring to corn crops.
Corn prices have already shot up 40 per cent since June to hit all time highs, soybean prices have spiked 30 per cent to record levels, and wheat prices have soared 50 per cent. These price increases may eventually result in increased prices for beef, chicken and other retail foods. Corn and soybeans are used to make feed for all livestock and poultry, thus as the drought reduces the harvest of corn it would drive up the price of feed for animals and then in turn meat products. However, in the short-term higher prices may have the opposite effect as farmers scull cattle in order to avoid having to feed them; thus temporarily flooding the market with meat. In the long-run, we can find meat prices being elevated for a while given the fact that cattle herds are difficult to rebuild and the inflationary effects may be long and lingering.
Unfortunately, Russia is also facing a drought and as one of the world's largest producers of wheat, barley and rye the supply of these grains is also under threat. It is estimated that Russia will have a 30 per cent decline in the country's usual crop yield. Thus, we can expect constrained supply in these grains and thus the possibility of higher prices for cereals, breads and other wheat products.
The reality for T&T is that we are net importers of food. It is estimated that our food import bill is as high as $4 billion and this means that roughly ten per cent of our scarce foreign exchange earnings is used to feed us. The current state of the global food supply and the fact that this is the third food-price scare in five years reinforces the need for us to shore up our own food supply.
Clearly, there is an urgent need for us to invest in agriculture and we must strive to be less dependent on an external supply for food. The current long-term global trends – increasing wealth in China and other emerging markets, the absence of investment in rural infrastructure, falling crop yields, and more frequent severe weather conditions – are altering the supply-demand balance in world food markets thus making them more susceptible to food supply shocks.
Our reality is that global food prices rose twice as fast as inflation over the last decade; and energy prices will continue to be a doubled edged sword for us. When energy prices increase, we enjoy increased export revenues; but higher energy prices also lead to higher food prices, thus a higher import bill. Moreover, for all our energy reserves and production the reality is that we cannot eat and drink oil and gas. We must invest in agriculture and its related infrastructure if we are to reduce our reliance on imported food.
Food security is not an issue that is unique to us. The world produces enough food to feed everyone but food supplies cannot be allocated equitably globally due to physical, political, economic and market constraints. The Economist Intelligence Unit has determined that the US, Denmark, Norway and France are the most food-secure countries in the world. These nations have invested heavily in agricultural research and development and in the necessary resources and infrastructure to have a sustainable food supply.
In response to this critical issue of food security, the Government has launched its "National Food Production Action Plan" with the stated objective of cutting our food import bill in half by 2015. On the micro level in each of our homes we must take the necessary steps to manage our own food bill, expenses and family budgets. Inevitably food would be a priority for all of us and if the cost of food continues to increase faster than our incomes then we each need to manage our financial affairs better. At present food price inflation is far outpacing our take home pay with 20 plus percentage increases with most of our incomes not increasing anywhere near that level. If this was an Olympic event, food prices would be Bolt and our incomes would have been…well, anyone else on the planet. So let's all prepare to manage our affairs even more prudently and consider what we each need to do to contain the cost of food. Who knows we may each need to have our own family food production plan. Live richly.
Jason Julien is a Financial Analyst and Registered Trader with the Securities and Exchange Commission and can be contacted at: firstname.lastname@example.org or followed on Twitter at: @julienomics
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