The Commodities Supercycle and Your Grocery Bill – by Moises Naimnov (The Atlantic – November 18, 2013)

From the cost of coffee to global power shifts, how commodity prices shape our world.

As you shop for Thanksgiving dinner this year, you may long for the good old days when food was cheaper. This isn’t just your nostalgia speaking. Over the past decade, food prices have increased at a very fast clip. According to the U.N.’s Food and Agriculture Organization, the global food price index has increased by 125 percent since 2000.

To understand why, consider the seemingly intractable prices of global commodities markets—your standard agricultural goods like coffee, sugar, and wheat, or resources like crude oil and coal that are used to produce or transport those goods. Not only do these complex commodities markets determine the cost of what we eat, but their high prices can fuel the kind of social unrest that in some countries has toppled governments.

These markets are as volatile and hard to forecast as the effects of their swings are contradictory. Commodities are both the origin of major fortunes as well as the reason behind financial crashes. Their gyrations also drive major shifts in geopolitical power—they can boost the influence of some countries while weakening others. For example, during the commodities boom that took place between 2000 and 2010, exporters of soy, iron, cotton, oil, copper, wheat, petroleum, wood, and other basic goods did exceedingly well.

Countries from Brazil to Malaysia used the windfall to improve living standards for millions of their poorest citizens. According to the World Bank, the size of the Latin American middle class grew by 50 percent—from 103 million in 2003 to 152 million in 2009. Since then, despite the global recession, the region’s middle class has continued to grow—to the point where, the World Bank reckons, its members are currently more numerous than the poor for the first time in history.

In these ways, high global commodities prices have been a boon to emerging markets and a source of global economic stability. Economic growth in China and India—whose populations account for 37 percent of the world’s population—has done much to fuel the rise in demand for commodities. In the past five years, agricultural imports to China alone have grown by 23 percent each year. But the spike in demand has also added to the uncertainty that characterizes these markets.

The planet is paying dearly too, as rapid growth in consumption—especially of goods like oil, coal, and metals that are non-renewable and highly polluting—has contributed to the dangerously high carbon dioxide levels in our atmosphere.

Now, however, there is a widespread perception that commodity markets are about to hit a wall that, once again, will trigger important shifts in the world economy and international politics. Many experts believe that the current installment of the “commodity supercycle” is winding down. These supercycles are periods of high prices that last for about 15 years on average and that have regularly appeared over the last 150 years.

For the rest of this article, click here:



Comments are closed.