Burning Question

Dear Bernado,
Why are the prices of cooking oil increasing? Aren't they made of palm oil, peanuts, corn or canola? What has this got to do with the price of crude oil?

Rgds,
Burnt

Dear Burnt,

When somebody thought it would be a good idea to burn food as fuel a few years ago, everybody else thought that would be a good idea. It would keep prices stable they said. So, commodity prices started going up and traders, players dealers, and of course those who produce the commodities, laugh all the way to the bank.

Futures dealers, ever on the lookout for a quick kill thought, "Hey lets milk this trend". Stock prices of companies so fortunate to be involved in relevant sectors soared. The boom continued like some abstract concept that gets talked about on Squawk Box but just does not register with the housewife in, oh, say Sitiawan. Soon a strange phenomenon started.

Everytime crude oil prices went up, so did vegetable oil prices. Why? Because the belief that biofuels could be a substitute for mineral fuels had taken hold. Never mind the fact that if every single drop of edible oil produced is converted into biofuel, it would constitute only 3% or 4% of the world's mineral oil consumption.

Still, all was just dandy until one day, somebody who was buying commodities on the spot market (instead of the futures market) found that the price increase just could not be absorbed any more.

And so food prices start going up. Milk, butter,cooking oil, wheat and thus processed food such as breads, chocolates - all started to creeping up. THose who laughed all the way to the bank continued to do so because they could afford to pay for the higher grocery and restaurant bills. The rest of the world paid the price - literally.

And so, here were are today facing a food crisis like the world has never faced before - not because we are not producing enough food to feed the world but because we are using it for non-traditional uses. The the lingo used to say we're burning food.

The NGOs have voiced their concerns. But what of the elected or appointed or annointed leaders of the world? What is being done as prices of food spiral out of control? Would anything be done?