Not Only About Price

Earlier in the week, the Straits Times featured a series of articles on the issue of food inflation. Some of the economists interviewed in one of the articles commented that rising food prices hurt Singaporeans less than other people in the region as we spend a lower percentage of our income on food compared to them.

While this view is correct under normal supply/demand conditions, I found it to be rather short-sighted in relation to the current global food situation. This is because with record low levels of inventory, food producing countries have become increasingly likely to ban food exports in order to keep prices low at home so as to appease the masses. As such, rising prices not only signal rising demand or relative scarcity, in the present context, they also serve as a risk indicator for shortages due to export bans. Our willingness to pay more for goods is meaningless if there are no willing sellers.

The thing about us Singaporeans is that we tend to assume that international trade will always happen, given that our entire history as an independent country has occurred within the context of a global environment that is conducive to trade. This has perhaps made us less conscious of the risks of trade not happening as countries protect their precious resources for their own internal use. The recent ban of wheat exports by Russia and the cutting down of rare earth exports by the PRC should serve as warnings of what can happen.

Given that we import everything that we need to sustain human life on this island, it will serve us well to keep the risk of resource shortages in mind.