Why did international food prices fall back to six years ago?

Inadvertently, international food prices have returned to the lows of the 2008 financial crisis. The prices of wheat, corn, rice and soybeans have all fallen by more than 50% from their post-crisis highs. Although the price of rice has fallen by less than 50%, it is not high enough to rebound during the crisis. therefore, the current absolute price level is much lower than the lowest level during the crisis. Take Thai rice (5 per cent breakage rate) as an example, the price peaked at more than $1000 / tonne before the crisis, fell as low as $470 / tonne during the crisis and rebounded to $620 / tonne after the crisis. but it has now fallen to $375 per tonne (August data), 20 per cent below its crisis low.

The global economy is still in the doldrums, but the total economic output of major economies has exceeded their pre-crisis peak. Compared with 2008, the US GDP expanded by 7.5% in 2014, China's GDP expanded by 80% in 2014, Japan's GDP expanded by 1.6% in 2014, and the EU's GDP in 2014 was basically flat. Why are food prices falling when economic activity is still expanding? Many people think that "people are iron, rice is steel, and they don't get hungry for a meal." not to mention that the economy is still growing, even if the economy is declining, we have to eat. There is "rigid demand." according to reason, grain prices should be the strongest. Why did it fall so badly?

People who follow this logic equate the demand for food with the need for food, but obviously they are not the same thing. Much of the food produced is not eaten by people, but is eaten by machines (industrial demand) or livestock (feed demand), which is obviously not rigid demand.

Some people may say that the feeding demand is an indirect demand, which ultimately serves the demand for meat, poultry, eggs and milk, or can be counted as a "meal" demand. It's actually a little reluctant. If the demand for meat, poultry, eggs and milk is also counted as the demand for food, then the demand for food is not so "just". Because, do not eat or reduce the demand for meat, poultry, eggs and milk will not cause much harm to the human body. So far, Indians consume very little meat, which does not hinder the growth and prosperity of their nation. Indians are more vegetarian, although there are cultural and customs factors, but low income is the root cause. It is typical that the upper class of India and Indians who emigrated to Europe and the United States eat much more meat than the average Indian. The massive increase in Chinese demand for meat is only a matter of more than a decade. Before the reform and opening up, it was very common for ordinary people to have a hard time tasting meat for a year. This is also a huge difference in diet after the change in income. If a demand is greatly affected by changes in income, we can say that this demand is very flexible and cannot be called rigid demand.

So putting aside the demand for meat, is the real demand for food not affected by income and very rigid? Use your head a little bit, in fact, this is not the case at all, because the trouser belt can always be strangled, people do not have to eat three meals every day, and money can be pulled out between their teeth. This means that a person in a state of extreme poverty can reduce his rations consumption. when he reaches a certain level of income, rations consumption will remain stable and will not adjust his rations expenses because of an increase or decline in income. So, to this level of income, does it mean that the demand for food has reached the rigid demand? Still not. Because although the amount of food will not change, but the content of the meal will change. It is also half a jin of rice a day, but in the past, the food was 3 yuan per jin, but now the income has increased and changed to 10 yuan per jin. The total consumption of rice has not changed, but with the change of income, the consumption proportion of its internal varieties has changed.

When economic recession income growth is slow, the demand for high-end rice will fall faster than the low-and middle-end, which means that the overall consumer price of rice falls (as a result of the shift of demand from the high-end to the middle-and low-end). In terms of quantity, the consumption of rice is not affected by income, but the demand structure is affected, and the price is also affected. From a macro point of view, we will see that the price of rice has fallen because of the economic failure, not because people have reduced their consumption of rice, but because they have changed the consumption structure of rice. And this is what people who question "if the economy doesn't work, won't we eat?" can't be understood. It is difficult to draw a correct conclusion on many problems without sinking and paying attention to the details.

In addition to food demand, industrial demand and feed demand, in fact, a considerable amount of food is wasted, which is also bought by consumers, so it is still included in the food demand when counting. These "wasteful" needs are closely related to income levels. On the whole, the higher the level of people's income, the more common the phenomenon of food waste. In the past, a grain of rice that fell on the table would be picked up and eaten, but now a large number of unfinished fish and meat were thrown directly into the dustbin. According to the 2012 data of the United Nations Food and Agriculture Organization, 1.3 billion tons of food are wasted around the world every year, most of which come from developed countries in Europe and North America. If 1/4 of these foods were preserved, it would be enough to feed about 900 million hungry people around the world.

Wasting food is morally reprehensible, but since the waster has paid for it, "waste" itself is one of its rights to deal with the food purchased. There is no legal requirement that a person must eat all the food he buys. Food waste is concentrated in Europe and the United States, not because Europeans and Americans are naturally wasteful, but because Europeans and Americans have a high income level, food is relatively cheap, and people can afford to waste it. This means that the "wasteful" demand for food is very flexible. When the economy slumps and people's incomes decline, the waste of food will first be reduced, which means that the demand for food will decline, and other conditions remain the same, food prices will fall.

What I have said so much is to illustrate a truth, that is, the demand for food is not rigid, and like many ordinary commodities, its demand is greatly affected by income. The next time someone asks, "will you stop eating if the economy is bad?", you can know the above. However, this still cannot solve the question raised at the beginning of this article: the total economic output is expanding, why food prices are not as good as they were six years ago. The expansion of economic output means that the level of social income is higher than it was six years ago, and according to the previous logic, the demand for food is also higher than that of six years ago, so why have prices come down instead?

In fact, it is very simple. The demand for food has increased over the past six years, but the supply of food has also increased, and it has risen even faster than the demand. According to the USDA, from 2008 to 2014, the output of the world's four major food crops (corn, rice, wheat and soybeans) in 2014 was 1.18 times that of 2008, with a total output of 16.1 billion tons in six years and a cumulative consumption of 15.8 billion tons.