Canberra, Oct. 24 - Prices of milk, bread and meat could triple in the next five years driven by dwindling world grain stocks and greater demand from producers of ethanol and other biofuels, a grain company executive said.
Prices of farm products are pulling out of a long-term decline and could "rocket" in the coming 12 months and in subsequent years, Imre Mencshelyi, Chief Executive of Perth-based Cooperative Bulk Handling Ltd., told Dow Jones Newswires in a recent interview.
Higher food prices are good news for farmers, but bad news for processed food producers as they increase input prices and for retailers, who want to cap prices to keep consumers buying. They also pose a problem for central banks since monetary policy targets broader price increases.
Underlying inflation, which is central to policy making at the Reserve Bank of Australia, was running at an on-year pace of 3% in the third quarter, at the top of the RBA's 2%-to-3% target band and up from 2.8% in the second quarter.
The headline consumer price index rose a more benign 1.9% from a year earlier. Big contributions to the CPI in the third quarter came from higher food and housing costs.
Mencshelyi forecast the retail price of a liter of milk could reach A$5 within several years from about A$1.80 now.
"The power is returning to the producer," in part reflecting the consolidation of production into fewer hands as many farmers are leaving the land, he said.
The number of farmers in Australia has dwindled in recent years because lower prices of previous years made farming unprofitable in Australia, as elsewhere.
Cooperative Bulk Handling is a grain logistics and marketing concern and owns six flour mills in Indonesia, Malaysia and Vietnam through Interflour Group, a joint venture with Indonesia's Salim Group, a global noodle maker and flour miller.
Mencshelyi's comments echo similar remarks from Les Wozniczka, chief execuive of farm services concern Futuris Corp. (FCL.AU) who also forecast soaring food prices due to an increase in the cost of key farm inputs such as fuel, energy, fertilizer, labor and borrowing rates.
Inflation Warning "Prepare yourselves for some serious inflation in your cost of living because globally we are seeing pricing power start to return to farmers," he said.
Australian food prices rose 1.9% in the third quarter versus the previous three months, with fruit prices up 10% and vegetables up 7.9%, according to data issued Wednesday by the government's Bureau of Statistics.
Craig James, chief equities economist at Commonwealth Securities Ltd. said the cost of food is rising sharply across the globe, with a Commodities Research Bureau foodstuffs index up 21% in the past year.
"In the current cycle that began just over seven years ago, food prices have soared by 90% making this upturn the steepest in around 35 years," he said in a note issued Tuesday.
Many factors are pushing food prices higher, including rising incomes particularly in Asia, changing diets, adverse weather and increased biofuel production which is absorbing more crops.
Supply will eventually respond to the increased global demand for food, but prices of grain-based products and meat "will remain elevated for at least the next year," he said.
That said, the vagaries of climate change, as well as the demand exerted by biofuels on crops "suggest that food prices could be higher for longer - just like metal prices," he said.