Agriculture Inflation

Especially scary is the trend of high prices working their way into the fundamentals. As one example, I read in Jim Jubak’s MSN money article a couple of weeks ago that Pakistan was growing much less wheat this year than last year. How is that possible? Doesn’t the market force of higher prices encourage higher production? No, not necessarily. In this case, the increased demand for fertilizer worldwide (leading to higher fertilizer prices) together with a lack of access to credit and futures markets (for Pakastani farmers) has contributed to a lessening of supply (at least in Pakistan).