As eminent Spanish philosopher Ortega y Gasset once remarked, somehow, when bread gets more expensive, people set bake houses on fire… At times it seems we are on a similar road: when prices of bread and milk climb, we cast the blame on bakers, processors and sellers.
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All we do is search for treachery behind their actions so that we could punish them legitimately.
The search for the culpable ones bursts out every time the prices of primary commodities tend up. How is it possible that the same product, which cost an x amount of money yesterday, is already worth a y amount and a bit more today? How does it happen that, driven by market forces, the prices of bread and milk products have gone up recently and are still on the rise? What are those market forces and what are their origins? When prices of any commodities rise, it is necessary to bear in mind that the price is the ratio between goods and money. And money is accumulating in Lithuania in general and in people’s pockets concretely.
This has been the result of Lithuania’s growing economy, productivity and exports, followed by increasing personal earnings. This is also the outcome of growing government spending, from borrowed funds and EU support included. The bigger the amount of money, the larger the demand. However, supply does not automatically increase in line with rising demand, so when the amount of money grows faster than that of goods, the latter become more expensive. Today, however, it is food products that are undergoing the sharpest rise in price. The specific causes of this price rise must be searched deeper.
Most likely, the primary cause is the world’s growing population, increasing labour division and aggrandising welfare. In China and other countries, there are increasingly more people who manage to purchase high-quality food and are not compelled to toil and moil from dawn till dusk in preparing it themselves. Evidently, demand is rising on the market. It’s relevant to remember the words of the former owner of real estate company Ober-Hause who sold his company and declared he was moving from Estonia to Argentina to take up a dairying business. Drawing on pure business intuition, rather than on some statistics, he said that global demand for milk is growing, so it should be a juicy business. Shortly after that, milk prices on the global market shot up by about 20 percent and by even more in the later period.
Shame on Western world: several months ago, Fidel Castro, the leader of communist Cuba, pointed to another cause of price growth in his reproach to US President George W. Bush. Western countries (Lithuania included) have increased milk prices worldwide. But how on earth could they do that? It’s through promotion of biofuel production. Farmland and other resources needed for the production of agricultural products are limited. Use them to satisfy one type of needs and you’ll run short of them to meet others. It is natural that the more rape and grain are cultivated for the production of biofuel and bioethanol fuel, the less farmland will be cultivated for food production.
Driven by similar causes, sugar prices have been fluctuating for some time now along with oil prices. In this particular case, the market has been responding to spontaneous changes rather than the measures of EU and US energy policy. But how does it happen that global trends manifest themselves in Lithuania as well? What have Lithuanian consumers got to do with all this and why don’t prices rise accordingly when farmers sell their products? It must be said that farmers will not be disadvantaged in such a situation. Prices go up purely as a result of increased demand, while diary farmers happen to be a good distance off from customers who determine demand, compared to sellers and processors. In cases when a diary farmer is also a seller, the results of changes in prices will come along more rapidly. Let’s take grain as an example: the farmer decides himself/herself when to sell grain and when not, and this is, in fact, speculative activity which translates into swift changes in prices and, consequently, instant benefits to the farmer from the resulting price rise.
The case with milk is somewhat different as there is no way to store it or to transport it for selling to China or the United States individually. The worldwide trade in milk is taking place basically in the form of powdered milk. Thus, diary farmers encounter only indirect gains or losses from changes in prices. But if the situation remains as it is now, diary farmers will also see significant benefits from price growth since processors will be forced to compete keenly for supply seeking to satisfy increased demand. No doubt, the biggest benefits from global growth of food prices come to companies operating in this field internationally, including food processors. But what’s so bad or blameworthy about that? After all, it means that more value added will generated in Lithuania, a still agricultural country.
We should also keep in mind that global markets and opportunities of trading imply that not a single citizen of countries participating in this market will remain foodless,
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and that substantial changes will manifest themselves in the form of rising prices, rather than in shortfalls or famine.
