Discuss the economic relationship between oil prices, food prices and Research Paper

Discuss the economic relationship between oil prices, food prices and the nascent global economic recovery - Research Paper Example This current inflation has not only limited itself to the real estate sector but it has now been affecting the other basic amenities of a common man’s life, most notably food. So the question arises whether the mankind is headed for a food crisis. Market research shows that developing countries like Yemen, India, Mexico, etc have all witnessed food inflation in recent times. People of Argentina have been seen boycotting tomatoes during the presidential elections as the price of vegetables got dearer to that of meat prices. Another instance shows Italian shop keepers organizing a one-day pasta boycott as an agitation against the rising food prices. So, what is the cause of this food crisis and price rises? Experts identify it as immense rise in oil prices. This project is an effort to gauge the economic relationship of oil price inflation and food price inflation and what is their impact in the nascent global economy (Kingsbury). Inflation and its massive global seriousness In light of the present scenario, the world has been witnessing unlimited rise in oil and food prices which is becoming an increasingly unbearable burden for the consumers and the producers. The United Nations Food and Agricultural Organization (FAO) in 2007, had reported that price of oil at nearly $100 per barrel resulted in huge upshot of the charge of food imports. FAO also predicted rise in the possibility of global hunger with subsequent increase in food prices, and as a result elevation in social unrest. Moreover, FAO reported dip in the worldwide food reserves to be the lowest recorded in the last thirty- five years. This was also another reason for the food prices staying high. FAO estimated rise in global food import bill was $ 745 million in 2007, up by 21% from 2006. In 2008, along with the ongoing inflation the prices of certain other items like that of soybean, corn and meat have also experienced all- time high prices. The oil price experienced a rebound to $ 140 per barr el after a slight slip (Kingsbury; Khor). Countries have been blaming each other for this. In the FAO, 2008 held in Rome several South American countries alleged developed nations for such atrocious results. U.S blamed Indian and Chinese people of increasing their food consumption with rise in income while India lashed back at U.S pointing out that people of West have long been making higher food intake. Most developing nations pointed out that speculation in the commodity markets were raising the food price. The Western countries blamed oil producing nations of not raising their oil supply to meet the rising demand and members of U.S Congress also asking for legislation to mark OPEC (the organization of exporting countries) activities as law defying (Khor). U.S and its massive demand for oil: How are food inflation and oil price rise related? Now amidst such adverse conditions there is an increasing need to assess the participation of United States of America in elevating food and oil inflation. United States is the world’s leading oil user. It contains only 2.9% of the total oil reserves that are proven and a very small percentage of unproven oil reserves. U.S receives about 29% intra-country oil productions and 21% of intra-country natural gas production through offshore drilling, mainly off the Texas and Louisiana coasts in the Gulf of Mexico, an area prone to hurricanes that are rising in intensity. Another 17% of domestic oil is received from the Northern Slope of Alaska by oil