Libyan turmoil increases fuel and food prices, states UN

CNN Money states that increased oil costs in the wake of political unrest in Libya have sent the cost of food goods upward. A report by the United Nations Food and Agriculture Organization indicates the food price index, which measures the price of a basket of food goods, was up 2.2 percent in February. Currently, the index is at its highest point since it was created in 1990.

Rise in food product prices

While sugar prices were slightly lower in February, costs for cereal, dairy products, meat and almost every other food commodity rose substantially. According to the U.N. Food and Agriculture Organization, U.S. consumers should expect the price of cereal to remain high throughout 2011, as inventories of wheat and coarse grains are low, and demand has remained high. When compared to February 2010, there was an increase in exporting costs this Feb.. This increase was a 70 percent increase.

Increase in oil costs

Due to the Libya violence shutting oil production down, the price of oil barrels went over $100 for the first time since fall 2008. In just the past 10 days, U.S. drivers have paid 25 cents more per gallon. The U.S. Energy Information Administration reports that this is the average in the U.S. for increased gas prices. FAO director David Hallman explained that global food prices aren't doing well.

“Unexpected oil price spikes could further exacerbate an already precarious situation in food markets,” writes Hallam. “This adds even more uncertainty concerning the price outlook, just as plantings for crops in some of the major growing regions are about to start.”

The connection between food and oil costs is clear to Jeet Dutta. Dutta is an economist for Moody's Analytics. Food production includes transportation. It cannot be forgotten.

“Energy is a big part of the cost bucket in food production,” Dutta told CNN. "Retail prices lag behind commodities, so consumers haven’t felt the full extent of recent increases."

Less food exported

Even as global harvests expand, exporters are tightening the reins on such product materials as corn, wheat and soybeans. This chokes global supply, which in turn raises costs. When compared to Wednesday's closing price, wheat is expected to go up 23 percent to $10 a bushel, soybeans up 7.6 percent to $15 a bushel and corn up 15 percent to $8.30 a bushel, in accordance with USB AG, a global financial services company.

These high food prices have brought on several to be put into poverty. Just since June 2010, says World Bank President Robert Zoellick, there have been 44 million individuals that have had this problem. According to World Bank data, those 44 million join the more than 900 million individuals globally who go hungry on a daily basis.

Citations

Bloomberg

bloomberg.com/news/2011-03-03/food-prices-to-extend-gains-as-stockpiles-rebuilt-led-by-corn-ubs-says.html

CNN

money.cnn.com/2011/03/03/news/economy/food_prices/

U.S. Energy Information Administration

eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_home_page.html

Strife in Libya and the impact on fuel prices

youtube.com/watch?v=A_wDDi9RzrQ