Despite the riots - is food still too cheap?

We have been reading about increasing concern of governments around the world about rising food prices, and the flow on effects on political stability.  Some commentators are saying that a big cause of the recent unrest in the Middle East was the significant recent rise in basic food commodities such as wheat and corn.

Maybe,  however, food is still too cheap.

The Australian Central Bank - the Reserve Bank of Australia (RBA) - operates under an independent charter (similar to the US Federal Reserve system) and is highly respected for its economic research.  The RBA's 2011 March Quarter Bulletin contains an article titled "Developments in Global Food Prices" which provides some interesting insights.

While the article discusses the trends that  those of us following the rising prices in food commodities over the last few months are familiar with - such as the dramatic rise in the price of food in the last few years;

And in particular in East Asia;

the article also contains this chart, which shows the real price of food relative to US GDP - since the early 1900's:

I found this the most interesting chart of all.  

The RBA article does not really explore the message of this chart in depth - but what the chart is saying is that - in spending power terms - food is still cheaper now than it was over 100 years ago - and even now it is only just as expensive as it was in the 1980's.

From the point of view of a farmer or an investor in a food production asset, food is still too cheap!  

The good news however is that the slope of the curve is heading in the right direction.  

As food prices start to reflect the real costs of the land and water inputs, we will see more investment into food production assets.  The agile first movers are already active - don't be left behind.