Statistic of the day: In the BRIC, people spend 19% of their income on food. Remember, grain is still quoted in dollars, and that 19% is off a much smaller base.
By comparison, Americans spend only 6% of every dollar we make on food. That buffers us from a lot of the impact of any sudden spike in food costs.
But in the emerging world, that same inflationary spike can both stall the economy and destabilize a society.
In Egypt, for example, inflation is trending well above 12% a year, largely due to food prices. As you recall, Egypt happens to be the world’s biggest wheat importer, and has had to pay ever-higher prices to feed its people.
Most of the BRIC countries — China, India, Brazil — are raising interest rates fairly aggressively to fight inflation, but countries like Egypt have not been so aggressive with rate policy.
As a result, food riots in Algeria and housing riots in Libya have helped destabilize those countries, while food price concessions were a key bargaining chip in the handover of power in Tunisia.
This will get worse before it gets better. Until it does, the food play is still on the table: your favorite fertilizer names like Potash Corp. of Saskatchewan, Inc. (NYSE:POT) as well as agricultural ETFs like the iPath DJ-UBS Grains TR Sub-Idx ETN (NYSE:JJG).
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.