Agflation (or agrarian
inflation) 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.[1] The term was increasingly used in the analytical reports, for example, by the investment banks
Merrill Lynch in early 2007[2][3] and
Goldman Sachs in early 2008.[4] 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 has described the phenomenon as a "silent tsunami".[5] Agflation endangers
food security, particularly for
developing countries, and can cause
social unrest.
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 lands. Higher demand creates an upward trend in the prices for food.
Emergence of
biofuels has substantially changed the agriculture business, creating additional demand for certain crops.[6]
Climate change may decrease the area of arable lands, reducing food supply.