National Farmers' Federation

High global prices trigger supermarket price swings

AT FACE value it looks a simple equation, but the relationship between higher food prices and the current drought is not cut and dry, the National Farmers’ Federation (NFF) explained today.
“Numerous reports have recently over-simplified how domestic food prices are set,” NFF Vice-President Charles Burke said.
The Westpac-NFF Commodity Index, released today, records the growing strength of world agricultural commodity prices of a further 6.0% during September. Prices are now a staggering 30.6% higher than 12 months ago, having a greater impact on Australia’s supermarket prices.
“With a population of just 21 million people, Australian farmers rely heavily on international buyers for our high quality food products.
“In fact, while most of the food Australians consume on a day-to-day basis is grown and produced here at home, this accounts for only 30% of the total volume of Australian agricultural production.
“Therefore, any analysis of domestic food prices must include an understanding of ever-changing world demand and supply.
“Trends such as the increasing use of grain and sugar for biofuel production, along with rising global incomes and increased food demand flowing from the skyrocketing Asian economy, are just two examples which illustrate that many factors – including Australia’s drought – push up global commodity prices.”
Senior Westpac Economist Justin Smirk noted: “Global markets are the leading contributor to setting local supermarket prices. Drought in Australia can still have a real impact, with each commodity having a different effect.”
“Any analysis of domestic prices must observe global supplies. For example, world grain stocks have diminished to their lowest levels in over 30 years – not just in Australia.”
Mr Smirk said Australian exports of commodities such as beef, grain and skim milk powder represent 19%, 15% and 17% of total world trade, respectively.
“In each case, drought in Australia has an impact on world supply and, therefore, world prices. However, it is only one factor,” Mr Smirk concluded.
Compared with August 2007 levels, global prices in September increased for Barley (13.4%), Canola (5.6%), Wheat (16.7%), Wool (1.6%), Beef (2.4%), Cotton (2.4%) and Dairy (1.1%).
Only Sugar (-2.2%) experienced a decrease in price from previous month levels.
The overall weighted index increased by 6.0% over September, taking it to 30.6% above the same period last year.
[ENDS] The Westpac-NFF Commodity Index is weighted according to the value of Australian agricultural exports and includes only rural commodities – unlike other price indices that are overshadowed by oil, mineral and energy prices. It provides daily movements based on prices of Australia’s eight key farm exports – wheat, barley, beef, wool, cotton, sugar, dairy and canola – in both $US and $A.

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