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Bernanke's Off the Hook: Emerging Markets Are Really to Blame for Rising Food Prices, Says Bremmer

Posted Feb 14, 2011 03:06pm EST by Stacy Curtin in Emerging Markets, China
Related: MOO, FXI, DBA, GDX, DBC, UUP, VWO

Food is becoming more expensive by the day according to the U.N. Food and Agriculture Organization’s Food Price Index. Food prices are at an all-time high having gone up for seven consecutive months.

So, why is food getting more expensive?

Ben Bernanke has taken a lot of the blame from critics who assert the U.S. Fed's loose money policy has stoked global commodity inflation.  But Eurasia Group’s Ian Bremmer says there are actually MORE important reasons to explain why food prices have been on the rise, citing these three in particular:

Reason #1 – Climate Change

Reason #2 – Rising Biofuel Demand

Reason #3 – Emerging Market Growth

While the impact of more expensive food is definitely felt here at home, it pales in comparison to the impact felt around the world, particularly in emerging markets and poor countries like Egypt.

Americans are not likely to stop spending and eating, where by contrast those in developing nations are not likely to have much of a choice but to go hungry or stage a huge political upheaval.

Just take Egypt where much of the country lived in poverty and 25 percent of the youth were unemployed.

On the face of it, politics and timing were largely responsible for sparking the social uprising in Egypt more than two weeks ago, says Bremmer. “[Politics] was the torch that actually got people out into the streets,” he tells Aaron and Dan on the accompanying video “But were it not for these underlying pressures particularity around food prices, these demonstrations don’t happen.”

There are many countries – many ruled by authoritarian regimes -- facing food instability around the globe, but most won’t end like Egypt because the political conditions have to be just right, Bremmer explains. Poor nations, like many in Africa, tend to have high rural populations that are not as educated and are not able to mobilize as effectively as the people in Egypt.

After the uprisings in Tunisia and Egypt, there has been talk that governments might increase subsidies for food. Bremmer agrees that greater inefficiencies in the marketplace -- such as subsidies and export controls -- are likley to occur as time goes on, but there is a somewhat of a silverlining in all of this. 

"One of the good things about food, unlike oil, is that food production is reasonably well distributed around the world," he points out.  Therefore, inefficiencies in one country won't hugely impact prices in another -- as least one can only hope.

See: 5 Ways to Fight Back Against Inflation

See: Move Over Bart Simpson, Ben Bernake is the New "I Didn't Do It Kid"

 

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