China and the Role of Oil in High Food Prices Globally

Food prices began to rise in 2006 due to the high prices of basic foods and grains coupled to the rise in oil. For that reason a lot of people living in poverty have experienced more hunger. These price increases are due to three main factors: increased demand from developing countries like China, the utilization of corn to create ethanol, along with the increased cost of fossil fuels. This article will discuss if China has a large role on these high food prices and what is the main cause of increasing prices.

China's Silk Road Economic Belt

When food prices began rising at the outset of 2006, China was blamed partly due to its high economic growth, substantial demand for oil and their expanding population. Some authorities asserted that with its escalating income per capita, Chinese people are increasing their demands for all products and eating more foods such as beef, poultry and dairy foods. This huge consumption put added demand on the grain to feed livestock, which increased feed costs. Furthermore, economic development put increased demands on oil which resulted in higher oil prices. The oil price increases also impacted the price of food. Another factor is China’s increasing human population that consumes a large amount of food and oil. 1.3 Billion people in China (and growing) is three times the population of the United States China’s silk road economic belt.

China’s economic development has been rapid for more than three decades. Its GDP growth rate has been great since 1977 as well as its average growth rate between 1977 and 2012. Because of the reliance on oil and food importation, China’s high oil demand can be regarded as a major factor for high food prices. Parallel to the high economic development, China’s oil imports demand has been noticeably increasing for several years. Its’ rising oil demand was about 31% between the years 2000 and 2006 and this trend is predicted to rise much further between 2006 and 2020.

Moreover, the demand for oil by other countries has a similar impact on increasing oil prices. In spite of high demand, China is not solely the cause of increased oil prices, there are other factors that combined are causing higher food prices..

To conclude, high oil prices largely contribute to higher food prices as manufacturers and retailers worldwide raise their prices on all goods in a game of catch up to the higher oil prices. This continues every year worldwide which has a negative effect on person’s finances. People are forced to spend more on food and fuel that they would normally save up or invest. Today’s worldwide food system is highly oil-dependent, but petroleum is becoming more expensive. Extreme weather events also contribute to the loss of crops and less supplies. Hence, there isn’t any proven solution for the world’s worsening food crisis within present energy and agricultural systems. High food prices are a direct result of the increasing supply and demand equation that is also tied to the usual rising oil and gasoline prices.

These factors have a direct impact on a family’s finances as they are forced to buy cheaper foods, drive less miles, and have less funds to place in their investment account. Every family needs to have a savings account for an unexpected rainy day expense down the road. High food prices are not likely to drop lower in the future so every family needs to budget for gradually higher prices.

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