Of the three crises currently occupying the economic stage - the subprime mortgage crisis (and attendant asset-backed commercial paper), the oil crisis and the food crisis, the last one is by far the most serious. While in the United States and Canada, governments worry about the falling value of bank stocks, financial liquidity and the possibility of an economic slowdown, the developing world has seen a dramatic growth in food shortages, social discontent, rioters in the streets and lives with the prospect of an augmented pool of many millions of hungry families. At the same time, Canada has reaped enormous gains from being a net exporter of energy, food and fertilizers.
The different factors in play
Energy
Energy prices have been rising gradually for several years, though they have increased most dramatically in the last year (see Figure 1). Food prices bear some similarity, in that their price ascent has been steep and recent (see Fi- gure2), which has prompted some observers to ask if fuel prices are driving food prices through their impact on fertilizers, fuel used in farm machinery and product transportation. But this is not the case: Agriculture Canada reports that fuel and fertilizers account for about 15% of farm expenses, and that these inputs increased in price by 20% between 2006 and 2007.1 This implies that such price increases account for about a 3% increase in farm expenses. So fuel prices, considered as a cost input, are not driving food prices directly in Canada.download
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