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August 21, 2012

Spiking Food Price Is Just The Beginning

By Mindful Money via QFinance

We’ve seen a number of spikes in food prices lately and the most recent is being blamed on the worst drought in 50 years in the US. Conditions in Europe haven’t been much better and even our own soggy summer will no doubt have an impact.

However, there are other underlying factors aside from the weather, which are exacerbating the situation: a growing global population, changes in diet and the increasing production of bio-fuels, for example.

With global growth still struggling, this rise in food prices comes at a bad time for consumers. If we have to pay more for groceries, then our disposable income is reduced, which means we spend less on other goods and services.

But even more concerning is the impact this has in the developing world, where food is a much larger proportion of consumer spending and where, in 2008, food price rises precipitated riots.

When utilities have price increases we sometimes talk about how you can benefit from this, often overlooking the hardship this situation can bring to certain areas of the population, but I find myself wondering if is it right to do the same when it comes to something as fundamental as food?

Can we rest easy knowing our own pot of money is increasing nicely while others struggle to feed themselves?

Everyone will have their own personal thoughts on this, and actually, the more I’ve thought about it the harder it has been to come up with any completely guilt-free investment ideas.

One way I thought to look at this is to think about the companies with the technology or research capabilities to help address this issue in the long term.

But even then, some of the methods used raise their own moral or ethical issues. More food from less land is an ideal solution but is it environmentally friendly, or good for your health? Certainly organic food producers in developed countries have done well in the last 10 years or so suggesting a proportion of the population would prefer not to use fertilizers, but then many other people put cost first.

And how much is it a vicious circle? We cut down rain forests to give more room for grazing, which results in climate change, which in turn has a negative impact on crop production…

And then there are GM crops, and fast-food from animal cells (the creation of artificial meat by delivering an electronic charge to the animal muscle cells in a mixture of amino acids, which causes the cells to multiply). The mind boggles.

But then are these investments all that different from those we have been investing in for years? Like tobacco companies, oil extraction, alcohol producers, etc. All have had their fair share of bad publicity as ‘sin-stocks’ but many remain decent investments and most of us, if not happy with them, manage to ignore the bad side of things – otherwise ethical funds would be a lot more popular.

In the end do we need to just trust in our ability to evolve and adapt? I don’t know the answer and we’ll all have different opinions. I’d be interested in hearing yours.

Courtesy Mindful Money via QFINANCE (EconMatters author archive here

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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