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Food prices are about to increase, quickly for some commodities, as weather and industrial action worsen the outlook for grains, fruit and vegetables.
The United Nations warned this week farm prices were reaching danger levels after bad weather in exporting countries such as Australia, Brazil and Russia hit crops.
Argentine farmers halted sales of wheat, corn and soy as they went on strike over export curbs, rekindling a dispute that helped drive global grain prices to record highs three years ago.
The seven-day protest by growers in the South American nation, one of the world's biggest food providers, could fuel supply concerns just as dry weather linked to the La Nina weather pattern worsens the outlook for soy and corn production.
Top financiers and politicians have accused banks, pension and hedge funds of inflating food prices around the world by speculating on commodities.
"There is no doubt that speculators have been behind surging prices.
Prices of wheat, maize and rice have increased very significantly but this is not linked to low stock levels or harvests, but rather to traders reacting to information and speculating on the markets," UN rapporteur on the right to food, Olivier De Schutter, said.
Mike Masters, US equity hedge fund head of Masters Capital management, who testified on food prices to the US Senate in 2009, said speculators and hedge funds were driving prices up.
The World Development movement in London said banks and hedge funds had poured money into food futures markets in the past three years, betting on prices going ever higher and creating a dangerous bubble.
BNZ senior economist Craig Ebert said the price of food was definitely a hot topic, coming as nearly every commodity price was going up.
All signs were pointing to an increase in prices last seen in mid-2008.
The price hikes could not all be justified by the increasing activity in industrialised nations, he said.
"Some of it is caused by the liquidity of markets.
Cash is finding its way into the markets as money needs to find a home.
"Investors who are adverse to equities and bonds are parking their money in real assets - property and gold are examples.
"But you can also do that in food.
You don't need to use sugar but you can still invest in it."
Inventory data out of the United States showed fewer grain stocks than previously thought, he said.
The shortage was affecting the price of the grain farmers were using to feed their cattle in the northern hemisphere winter.
The farmers had the choice of paying more for their grain or cutting back the number of cattle they were feeding.
In some countries, governments had reacted to shortages by cutting exports to ensure the local population was fed.
India, for example, had forbidden the exports of onions.
"While that will seem silly to us, these things are really important to those economies.
For a lot of emerging economies, food prices are a huge part of living costs.
When the price of rice or grain goes up, it's a big deal."
In New Zealand, there were two sides of the equation to consider, Mr Ebert said.
Higher production costs in the US would mean some reduction in capacity and good news for New Zealand producers of beef and milk.
But the reverse was the higher prices consumers could expect to pay for their food.
The floods in Australia had devastated fruit and vegetable crops, something that could not be replaced overnight.
"You can't suddenly replant stuff.
There is a six- to eight-month planting cycle.
"Food price inflation will go up and maybe this is a transitory phase until the next harvest is due.
"Fresh food doesn't have a long shelf life.
If you still need it, you will have to pay for it."
There had already been some immediate effects in prices after global shortages but the rate of the price rise would depend on the commodity.
It was hard to be precise, he said.
ASB economist Christine Leung was surprised to find New Zealand's food prices fell 0.8% in December, below her expectations of a slight increase.
The key surprise was a fall in fruit and vegetable prices, a typically volatile series.
The fall was driven by lower tomato and lettuce prices.
Grocery prices also fell slightly, despite the increase in the price of wheat and dairy products in international markets in recent months.
"We expect these increases in international markets will flow through to higher grocery prices at the domestic level over the coming year.
"Added to that will be higher fruit and vegetable prices, given the widespread floods in Queensland which have damaged crops and sharply reduced supply."
Food price inflation would emerge with general inflation in the coming year, she said.
New Zealand's consumer price index, the official measure of inflation, is due out tomorrow.
Inflation is likely to have risen to 4% in the year ended December, with the October rise in GST responsible for most of the increase.
THE GOOD NEWS
- Rising food prices will mean better returns for producers in New Zealand.
- Higher farm gate prices will mean better returns in an export-led recovery.
THE BAD NEWS
- Consumers around the world will pay higher prices for their food, both imported and domestically grown.
- In New Zealand, higher fruit and vegetable prices will be caused through flooding in Australia.
- Higher meat and dairy prices will come from a shortage of grain in the United States.