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Rise in Oil And Food Prices

Oil And Food Prices:

Last week, the UN Food and Agriculture Organisation released data showing its world Food Price Index (FPI) averaging 133.2 points in October, the highest since July 2011.

  • No less significant, though, is the way the FPI has oscillated since the outbreak of Covid-19.
  • In May 2020, when the global economy was in the doldrums, it had collapsed to a four-year low of 91.1 points. From there to a ten-and-a-quarter-year-high now has been quite a climb.
  • Much of this roller-coaster has had to do with oil.
  • One reason why petroleum and agri-commodity prices move in tandem is the bio-fuels link.
  • When crude prices rise, blending ethanol from sugarcane and corn (maize) with petrol or diverting palm and soyabean oil for biodiesel production becomes that much more attractive.
  • Cotton, likewise, turns relatively affordable vis-à-vis petrochemicals-based synthetic fibres.
  • Also, since corn is primarily an animal feed, its diversion to ethanol leads to substitution by other grains, including wheat, for livestock use. That, then, pushes up prices of foodgrains as well.
  • The same happens to sugar, as mills step up the proportion of cane crushed for fermenting into alcohol.

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