Food Prices Will Continue To Rise – Here’s How To Profit

Date 07/07/2008

The Right Side

Garry White

Gordon Brown wants you to waste less food, but government policies are wasting more food than you ever could…

and there’s a way you could to profit from the madness…

This afternoon we will discover whether the government is going to make a stand against the world’s dumbest policy, but I am not holding my breath.

I see little chance that Britain will take the lead and scrap biofuels targets – this is very bad for the world’s poor, but it makes the outlook for our food investment very rosy indeed.

The Gallagher report is scheduled to be released today. We will discover whether the government will stick its head over the parapet and withdraw a dangerous law. I have been saying for more than a year that the Renewable Transport Fuels Obligation (RTFO) is a crazy idea, as burning food for fuel will lead to shortages and price rises. EU legislation requires us to blend 2.5% of all petrol and diesel sold with biofuels at the moment – rising to 5% in 2010 and 10% in 2020.

However, I am not holding my breath.

UK industry keeps up the pressure

John Cridland, deputy director-general at the CBI, thinks the targets should be kept.

He told the FT today: “We recognise that the science of renewable fuels is a moveable feast but business must have consistency and predictability of policy if it is to invest to tackle climate change.”

The CBI and the US government are reading off the same page. The CBI is trying to save the UK industry and the US is trying to promote its own by ignoring the impact on food prices.

Ahead of the food conference in Rome at the start of June, the Bush White House went on the offensive to support its energy strategy.

US Secretary Of Agriculture Edward Schafer said that an analysis by his department had determined that biofuel production was responsible for just 2% - 3% of the increase in global food prices, while biofuels had reduced consumption of crude oil by a million barrels a day.

I trust this figure more

This is in sharp contrast to leaked figures from other institutions, which are arguably more impartial. World Bank Economist Don Mitchell reckons that biofuels have pushed up food prices by a massive 75%... but reports suggest the bank won’t release the figures because it does not want to upset the US.

However, it looks like an EU meeting held last week has given Gordon an interesting potential fudge. Gordon may have been handed a way out without announcing a massive u-turn on the RTFO. French Ecology Minister Jean-Louis Borloo said many people had “misinterpreted” the RTFO target to mean 10% from biofuels alone. He now argues that this could also include electric vehicles recharged using green electricity or powered by hydrogen. Neither of these two options, however, are practicable at the moment.

Even if the EU backpedals on the RTFO, I do not see the US making such a move.

The US ethanol lobby is very powerful and government rhetoric has backed biofuels to the hilt. The US’s relenting charge towards energy independence will ensure that food is burnt for fuel for many years to come… but this is not the only trend that is boosting food prices.

The global population is exploding at an astonishing rate. According to the UN, there are expected to be 9.4bn people in the world by 2050… that’s a massive 40% increase in the number of mouths to feed from the current 6.7bn people.

Then there’s the Westernisation of diets in the Far East, which leads to more meat consumption and, consequently, the rise in demand for grain feeds. When this is combined with a falling bank of farming land due to urbanisation and climate change, then the outlook for food prices is very bullish indeed.

If Gordon Brown had any sense at all he would make sure these targets are scrapped, build some new coal-fired plants forthwith and get cracking with our nuclear energy strategy.

Unfortunately, just like the EU, I expect him to fudge the issue. After all, that’s what we have come to expect.

My Smart Commodities UK readers are well placed to profit from this critical situation. If you’d like details on the one stock I recommend you buy to profit from this food phenomenon, find out about a subscription here

Garry White
Editor
Smart Commodities UK

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