Liam Dann: Wait for the protests as those food bills keep rising

When the price of cheese starts to rise you can bet that anger levels will too. Photo / Thinkstock

People get angry about the cost of food because - like water, air and giant digital TVs - food is a commodity which is fundamental to our very existence.

Prices are always too high but right now they are higher than for a couple of years and the bad news - according to the experts who track commodity markets - is they are set to get a lot higher.

Yes, there is the GST rise, which has more or less flowed through to supermarket shelves according to figures out this week, but something more worrying is at play.

It is looking like early 2008 all over again. When you cast your mind back to days before the global financial crisis it easy to think of a carefree era of economic prosperity.

But people were also rioting and generally taking to the streets across Europe, Africa, Asia and South America as food and oil prices spiked to record highs.

In New Zealand anarchic protest took the form of angry emails to the agriculture editor about the price of cheese.

This year on the news wires the stories about far-flung food protests are back. So are the angry emails in our ag editor's inbox.

What's going on?

The obvious point is that global population is growing at a faster rate than food supply.

Also new wealth in India, China and other non-Western nations means consumers there are demanding a richer and more varied diet, including more meat and dairy - both of which are less cost-efficient to produce than vegetarian alternatives (in the Northern Hemisphere at least).

These problems, which became critical in 2007, were never actually resolved.

The world was relieved temporarily by the onset of the financial crisis, which curtailed consumer demand in the West. Prices for key farm inputs like oil, metal and chemicals (for fertiliser) fell and food followed.

But now as economic activity picks up, so has the demand for commodities.

Adding to the problem are some specific climatic events - floods and droughts - in the past 12 months that have reduced production of things like wheat, grain and sugar.

Grain price rises push up the cost of not just bread but meat and dairy as cows in most Northern Hemisphere farms feed on the stuff.

It seems these weather-related spikes are becoming more common.

At the very least we have seen food production intensify and consolidate into key regions of the globe in the past few decades.

So when one of these regions is hit by bad weather the impact on global prices is more significant than it was.

Then, of course, there is the spectre of global warming and its influence hanging over all these climatic events.

Some people get angry about this kind of geopolitical explanation, blaming traders and markets for pushing the cost of food up.

Speculators on futures markets can exaggerate spikes and traders certainly played a part in the 2007 bubble. But speculating on commodities is not the same as speculating on land or obscure property-based derivatives. Traders invest based on detailed information about food production and that comes back to fundamentals of supply and demand.

If it was just a speculative bubble it would be far more easily fixed.

That doesn't mean the current system is fine. In fact there are clearly some big problems that justify urgent attention.

When TVs keep getting cheaper while bread keeps getting dearer, something isn't right.

The solutions range from changing the way we farm and changing the way we eat to changing the way global markets work.

Should we embrace genetic modification to boost productivity or should we all become vegetarians, growing our own produce locally? Should markets be freer to stamp out the inefficient production of state-protected farms or should there be regulation to ensure food security for domestic consumers.

At present we are stuck with a frustrating ideological divide which kills off any chance of meaningful debate about how we utilise the best of all available solutions.

Meanwhile, economists have been quick to point out that New Zealand benefits from higher prices.

This makes some people angry because they can feel themselves getting poorer.

New Zealand exports a lot more food than it imports so it is just maths that the economy will get a net gain out of higher global prices.

But those gains are not distributed evenly and higher prices will always be worse for those on low fixed incomes who spend a higher percentage of their total pay on the food bill.

The current commodity boom means the next Government may have a better economic position from which to improve things.

But in this election year - while farmers use their payout money to pay down debt and recapitalise after a tough few years - it will be consumers feeling the pinch.

New Zealanders aren't big on street protests but when the price of cheese starts to rise you can bet that anger levels will too.