| You are what you eat and what you drive |
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| Written by Daniel Steinmann | ||||
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Food and fuel price increases are arguably the biggest economic crises we have seen in recent months.
Not since 1978 have we experienced such
upheavals in the crude market and not since the Second World War have
we had food shortages comparable to the current situation. Both items are crucial economic inputs. Not only that, both items are
also essential commodities for daily life. Thus they have a direct
bearing on the cost of living and both invariably create chain
reactions leading to price rises in almost all other industries and
business sectors. Conventional economic analysis offers a range of causes, some obvious, others more obscure, for the sudden and meteoric rise of the price of food and fuel. Almost every report that speaks intelligently on food and fuel suggests causes, which by now have almost become clichés. Production constraints, supply constraints, biofuel competition and an ever-growing demand, especially from the rapidly developing Chinese and Indian economies, each with around a billion people moving steadily up the economic ladder as the two respective countries grow. In my mind, all of these stated causes are valid in the sense that they certainly form part of the equation, but I deem them to be secondary. For instance, a production constraint only arises if there are prior primary conditions that lead to the changes in the environment, which, in turn, leads to a decrease in production. Similarly, supply constraints arise only if there are breakdowns or interruptions of the supply chain preceding the actual distributive link between production and the market. Cutting away the flesh, I would suggest that there are a number of primary drivers that actually constitute the bulk of the underlying (real) reasons why we so suddenly got this food and fuel shock. |
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