ed Fear of agflation

Time to push for overseas food bases

The inflation rate, as measured by consumer prices, dipped to a 12-year low last month but the country’s economic policymakers appear unrelieved with the desired price stability because of “agflation” fears.

Corn, soybean and other grain prices have been surging worldwide amid the worst U.S. drought in half a century, sparking concern that the world will grapple with agflation ― a coined term describing inflation led by rises in agricultural commodity prices.

Corn futures for December rose to $8.17 per bushel on the Chicago Board of Trade (CBOT) Monday, up 3 percent from the previous trading day. Soybean futures soared 1 percent to close at $16.17 a bushel, the highest price since July 23. Corn prices have surged by more than 50 percent over the past six weeks.

Given that fluctuations in international grain prices usually put pressure on consumer prices within four to seven months, the shock from the latest price hike of grains will hit the country from late this year through the first quarter of next year.

The spike in grain prices, which is closely related to costs of a wide range of food products, would deal a fatal blow to the already-ailing economy. Specifically, it’s hard to mobilize macroeconomic measures, including interest rate cuts, under the spell of agflation even if there is an urgent need to stimulate the economy.

In 2008, a similar surge caused the prices of flour and mixed feed here to soar as the country depends heavily on imports for its grain needs. Korea’s food self-sufficiency rate, including rice, remains at 26 percent. Most demand for wheat and corn is met by imports.

Earlier this week, Goldman Sachs, a global investment bank, predicted that surging international grain prices would jack up Korea’s consumer-price inflation by up to 0.4 percentage point from late this year through early next year. The Korea Rural Economic Institute expects prices of flour, which is used as raw material for various processed foodstuffs, to jump 27 percent during this period.

Most problematic is that agflation will take place routinely as demand for grains in such emerging economies as China and India will surge while grain harvests in the U.S. and other major farming areas remain subdued. Experts say the current agflation will last longer than the 2008 crisis.

True, it is an external factor that is hard to be managed domestically, but the government should do what it can in the long-term perspective.

The agriculture ministry says it will extend non-tariff benefits for wheat, corn and soybean through next year, diversify grain import sources and improve the local distribution system of farm products, which are seen in 2008.

The long-term solution will be to create overseas food bases. To this end, the government will have to set in motion its 10-year blueprint for overseas food bases that has been in mothballs since its inception in 2008.