Food prices: Between falling and rising [Archives:2008/1220/Opinion]

December 29 2008

Dr. Safa Khalil Al-Nuaimi
The meeting, which the Balagh weekly held with some economic experts in Yemen on the falling food prices at the international level while prices in Yemeni markets remain unaffected by the fall, encouraged me to write about the phenomenon of falling food prices worldwide, most notably in the neighboring states of Saudi Arabia, United Arab Emirates and Jordan. I don't know whether food prices will continue to decrease and until when.

There is an optimistic vision about falling prices at the international level, which is what is currently happening, plus a pessimistic vision that the global economy will be affected by recession, thereby leaving negative impacts on production. As a result, the agricultural and food production will decline, and be accompanied by rising demand for products, which will cause prices to increase.

Despite the fact that the global financial crisis made the world suffer heavy loss and dragged it into a horrible tunnel, such a crisis also left positive effects that helped the poor somewhat improve their vulnerable conditions. The financial crisis forced prices of basic foodstuffs and other necessary commodities to fall after they hit to an unprecedented record high.

One of the crisis's consequences is that prices fell down while importers and workers in the import and distribution of foodstuffs in many neighboring states made a consensus that the prices fell in all states of the region following decreased costs in countries of origin as a result of the global financial crisis last September.

Prices of some commodities decreased by 20 – 30 percent and others more than this rate, however, the current problem is related with large quantities of stored commodities purchased for high prices. We are expected to see prices to continue falling down as soon as such stored commodities run out. When will those stored commodities run out? There are growing fears among traders that prices may decrease even more while exporters and producers try to avoid falling prices in order not to fail in increasing prices in the future.

In UAE, Kuwait, Saudi Arabia and Jordan, prices of foodstuffs and other basic necessities fell down in unexpected manner, particularly amid efforts practiced by cooperative associations that notify consumers of any price decrease as soon as it occurs.

Rami Khraisat, an economic analyst residing in UAE held the view that the poor population and states depending on imported commodities benefit the most from the global financial crisis. He pointed out that the poor have nothing to lose due to the crisis, but they rather profited from decreasing prices of foodstuffs and oil.

Providing Jordan as one of the states that benefited from the crisis, Khraisat said the Arab state witnessed unexpected fall in the prices of oil products following decrease of oil prices at the international level. In addition, prices of other foodstuffs were also cut. He added that the rising exchange rate of dollar to other currencies helped the dollar-connected currencies such as the Jordanian Dinar and those of Gulf States recover, labeling such as a notable factor behind falling prices of commodities imported from Europe, Australia and other parts of the world.

In light of falling prices of products these days as a result of numerous factors including the global economic recession, farmlands may decrease, thus leading to a fall of products in main agricultural exporters. And due to declining quantities of stored grains, the scenario may be responsible for a new wave of price hikes by the advent of 2009, which will mean a catastrophe for millions of people with low purchasing powers.

According to a recent international report, risks of the global financial crisis, loss of food security and absence of power security constitute the key challenges to global economy this year. Released by the World Economic Forum, the report said that possibilities of economic recession in the U.S. stressed the necessity of changing ways of thinking to respond to notable changes taking place in stock markets over the past two decades.