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Food and energy will be the new arms race!

You don’t have to be Einstein to recognise that the cost of living in Australia is on the way up…and pretty quickly. You just need to do the weekly grocery shop or fill up at the petrol pump to feel the pinch of growing food and oil prices.

Unfortunately, a report in The  Financial Post suggests that things are not about to improve any time soon, with Superfund Financial estimating that coffee, sugar and cocoa prices are set to rise five to ten fold by 2014 due to shortages that will see consumers swamped by food inflation

A shortage of agricultural land and rising production costs means growers will not be able to keep up with demand according to Superfund’s outlook, which comes off the back of a United Nations Index of world food prices that jumped to a record last month.

There are escalating concerns around the world regarding global food security, with managing director of Superfund Financial Kevin Smith saying, “There’s a tremendous shortage of food, there’s a tremendous shortage of arable land. Any kind of food products are going to increase.”

Coffee jumped more than fivefold in the two years through July 1994 and more than tripled from February 2002 to March 2005. Sugar prices rose fourfold from June 2002 to February 2006 and more than tripled from June 2007 to February last year. Cocoa advanced 242% from December 2000 to January 2003.

Access to water, higher labor costs and rising incomes are also issues for food commodities, Smith said.

“There’s about 7 billion people in the world,” he said. “When you have that many people, it only takes tens of millions of people to move up a market that’s so small like sugar.”

Alarmingly, with the global population expanding rapidly and projected to reach 9.1 billion in the next forty years, it is estimated that world food production will have to increase by 70% by 2050 to meet demand.

World Bank president Robert Zoellick says food costs have pushed more than 44 million people into poverty since June 2010, adding to the more than 900 million people across the globe who go hungry on a daily basis.

According to Smith, it’s “an incredibly difficult humanitarian story because the poorest countries will be hit the hardest. The average person is going to be swamped by food inflation. The new arms race is food and energy.”

The take home message for those of us who live in “the lucky country” is clear – our general cost of living will continue to climb and more than likely, well beyond the increase in the average weekly wage.

To survive, we need to become more financially independent and realise that government offerings like the aged pension may not cut the mustard in twenty years time.

Investment is now becoming more of a necessity for the average Australian who hopes to live comfortably in retirement. No longer is it just something that people who strive to be rich indulge in, now looking after your financial security is something we all should consider very seriously.

And the best way for most Australians to invest will be in property.



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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