Agflation (or agrarian
inflation
In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
) 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 Lynch, Pierce, Fenner & Smith Incorporated, doing business as Merrill, and previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investm ...
in early 2007 and
Goldman Sachs
The Goldman Sachs Group, Inc. ( ) is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many internationa ...
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 (WFP) is an international organization within the United Nations that provides food assistance worldwide. It is the world's largest humanitarian organization and the leading provider of school meals. Founded in 1961 ...
has described the phenomenon as a "silent tsunami".
Agflation endangers
food security
Food security is the state of having reliable access to a sufficient quantity of affordable, healthy Human food, food. The availability of food for people of any class, gender, ethnicity, or religion is another element of food protection. Simila ...
, particularly for
developing countries
A developing country is a sovereign state with a less-developed Secondary sector of the economy, industrial base and a lower Human Development Index (HDI) relative to developed countries. However, this definition is not universally agreed upon. ...
, and can cause
social unrest
Civil disorder, also known as civil disturbance, civil unrest, civil strife, or turmoil, are situations when law enforcement and security forces struggle to Public order policing, maintain public order or tranquility.
Causes
Any number of thin ...
.
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 , "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 the purposes of a ...
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. Biofuel can be produced from plants or from agricultural, domestic ...
has substantially changed the agriculture business, creating additional demand for certain crops.
*
Climate change
Present-day climate change includes both global warming—the ongoing increase in Global surface temperature, global average temperature—and its wider effects on Earth's climate system. Climate variability and change, Climate change in ...
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 we ...
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 where 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 polic ...
has created much new capital that chases the same amount of food.
*
Food speculation
Food speculation refers to the buying and selling of futures contracts or other commodity derivatives by traders with the aim of profiting from changes in food prices. Food speculation can be both positive and negative for food producers and buye ...
by big players has recently become a substantial problem.
See also
*
2000s commodities boom
The 2000s commodities boom, commodities super cycle or China boom 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 Commoditie ...
*
2007–2008 world food price crisis
World food prices increased dramatically in 2007 and the first and second quarter of 2008, creating a International crisis, global crisis and causing political and economic instability and social unrest in both Poor countries, poor and develop ...
*
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 (finance), volatility of food markets and increase market tra ...
*
Commodity price shocks
*
Issues relating to biofuels
Issues relating to biofuel are social, economic, environmental and technical problems that may arise from biofuel production and use. Social and economic issues include the "food vs fuel" debate and the need to develop responsible policies and ec ...
References
{{Population
Inflation
Financial economics
Macroeconomic aggregates
Macroeconomic problems
Economic bubbles