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Agflation (or agrarian
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
) is an economic phenomenon of an advanced increase in the price for food and for industrial agricultural crops when compared with the general rise in prices or with the rise in prices in the non-agricultural sector. The term was increasingly used in the analytical reports, for example, by the investment banks
Merrill Lynch Merrill (officially Merrill Lynch, Pierce, Fenner & Smith Incorporated), previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investment ba ...
in early 2007 and
Goldman Sachs Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, Ho ...
in early 2008. They used the term to denote a sharp rise in prices for agricultural products, or, more precisely, a rapid increase in food prices against the background of a decrease in its reserves, a relatively low general inflation rate, and insignificant growth in the level of wages. Agflation has become an increasingly important issue for many governments. From time to time agflation may become so severe that the
World Food Programme The World Food Programme; it, Programma alimentare mondiale; es, Programa Mundial de Alimentos; ar, برنامج الأغذية العالمي, translit=barnamaj al'aghdhiat alealami; russian: Всемирная продовольствен� ...
has described the phenomenon as a "silent tsunami". Agflation endangers
food security Food security speaks to the availability of food in a country (or geography) and the ability of individuals within that country (geography) to access, afford, and source adequate foodstuffs. According to the United Nations' Committee on World ...
, particularly for
developing countries A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
, and can cause
social unrest Civil disorder, also known as civil disturbance, civil unrest, or social unrest is a situation arising from a mass act of civil disobedience (such as a demonstration, riot, strike, or unlawful assembly) in which law enforcement has difficulty ...
.


Key features

*Agflation can be a starting point for the general inflation. *Agflation creates additional pressure on a household income, reducing available money for other purposes. *It is especially dangerous both for the poor countries and for the countries that are dependent on imported food.


Reasons

Several reasons may cause agflation: structural (changes in the supply-demand balance), monetary (the result of loose monetary conditions or speculations), and external (climate change, natural disasters, etc.) Among them are: *Growing population living on the same area of
arable land Arable land (from the la, arabilis, "able to be ploughed") is any land capable of being ploughed and used to grow crops.''Oxford English Dictionary'', "arable, ''adj''. and ''n.''" Oxford University Press (Oxford), 2013. Alternatively, for th ...
s. Higher demand creates an upward trend in the prices for food. *Emergence of
biofuels Biofuel is a fuel that is produced over a short time span from biomass, rather than by the very slow natural processes involved in the formation of fossil fuels, such as oil. According to the United States Energy Information Administration (EIA ...
has substantially changed the agriculture business, creating additional demand for certain crops. *
Climate change In common usage, climate change describes global warming—the ongoing increase in global average temperature—and its effects on Earth's climate system. Climate change in a broader sense also includes previous long-term changes to ...
may decrease the area of arable lands, reducing food supply. *Rising demand from
emerging markets An emerging market (or an emerging country or an emerging economy) is a market that has some characteristics of a developed market, but does not fully meet its standards. This includes markets that may become developed markets in the future or wer ...
sends food prices upward. *Devaluing United States dollar creates upward pressure on prices. *Violent weather phenomena (droughts, floods, hurricanes) usually result in a reduction of food supply. *Export limitations by governments of major food exporting countries push prices for certain food items higher. *Excessive
quantitative easing Quantitative easing (QE) is a monetary policy action whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary pol ...
has created much new capital that chases the same amount of food. * Food speculation by big players has recently become a substantial problem.


See also

*
2000s commodities boom The 2000s commodities boom or the commodities super cycle was the rise of many physical commodity prices (such as those of food, oil, metals, chemicals and fuels) during the early 21st century (2000–2014), following the Great Commodities Depress ...
*
2007–2008 world food price crisis World food prices increased dramatically in 2007 and the first and second quarter of 2008, creating a global crisis and causing political and economic instability and social unrest in both poor and developed nations. Although the media spot ...
*
2010–2012 world food price crisis Following the 2007–2008 world food price crisis and a short lull in high prices during 2009, food prices around the world again started to rise in 2010. To reduce the volatility of food markets and increase market transparency, several me ...
* Commodity price shocks *
Issues relating to biofuels There are various social, economic, environmental and technical issues with biofuel production and use, which have been discussed in the popular media and scientific journals. These include: the effect of moderating oil prices, the "food vs fuel" de ...


References

{{Economics Financial economics Macroeconomic aggregates Macroeconomic problems Economic bubbles