Cheerios or Cheer-nots?

Do you look at your groceries receipt when you walk out the store and notice that it is higher than what it was a couple of months ago? That is because food prices in August reached a two-year high according to a food price index developed by the Food and Agriculture Organization (FAO).

The main culprit behind the higher prices is wheat. One of the major producers and exporters of wheat in the world is Russia. Unfortunately, the nation has seen its crops wither and is also experiencing grain shortage. The situation is further worsened by many large wild fires. All of these factors, which has caused 25 million acres of wheat crops to be destroyed, have led Prime Minister Putin to impose a ban on wheat exports. This statement which was made public in mid-August shocked the markets and led to drastic price increases of the product. It is hard to predict what will happen next.

The old fashioned supply and demand theory can still be applied but only to an extent. Supply has decreased; the market is not in equilibrium any more. Logically, prices rise while demand quantity falls until new equilibrium is established. The world however is not this simple. There are many rumors floating around which makes the food market unstable.

One of them is that a crop failure in Australia which followed a locust invasion, in conjunction with the wet summer that Canada experienced, will lead to a worldwide shortage. A statement like this is a good enough reason for prices to rise even more.

Moreover, there is the theory of the global ripple effect: other countries hoarding food which leads to a further decrease in grain supply, leading to food prices rising even more among other negative impacts. A perfect example is India. The government of India is stockpiling wheat in such quantities that it is actually starting to rot.

Even though nations such as India are taking drastic measures, a global food shortage is quite unlikely. However, prices will probably stay unstable for awhile.

In conclusion, with such unstable prices be sure to hold on to that box of Cheerios since who knows how much it will cost tomorrow.