Reporter: Michael Edwards ELEANOR HALL: World wheat prices have hit their highest levels ever, and economists are warning that this will push up the cost of agricultural production worldwide.
Poor crop yields and increased demand have pushed basic commodity prices to record levels, and analysts say the flow-on effect is being felt across the global rural sector, and that Australian consumers should brace for higher grocery prices very soon.
Michael Edwards has this report.
MICHAEL EDWARDS: Food: it's costing more to grow it and it's costing more to buy it.
Greg Barrow from the World Food Program says the cost rise is largely being driven by an increase in the demand for grain, particularly from developing countries such as India and China.
GREG BARROW: This is having an impact because demographic growth means more people need to be fed, the economies are stronger, which means that they have the ability to make those purchases and tastes are changing in those countries. There's been a shift towards greater consumption of meat and dairy products. The production of meat and dairy products themselves requires much more grain.
It's very difficult to say to India and China, you've got to put a break on your growth because it's causing food price rises. But there are also other factors. Bio-fuel production is having another impact. Food that would've been produced for consumption is now being produced for fuel.
MICHAEL EDWARDS: The effect has been most marked on wheat prices.
For the first time ever, the price per bushel of wheat has broken the US$10 per bushel mark.
Mick Keogh is from the Australian Farm Institute, an independent policy research centre on agricultural issues. He says the record price is due to a combination of drought and increased demand.
MICK KEOGH: There's probably three factors at play at the moment. One is the demand for westernised diets, as Asian consumers become more wealthy. That involves more animal protein, which of course creates excess … extra demand for a grain to feed those animals.
The second is bio-fuels and the push to convert crops into energy, which is obviously having an impact on the market.
The third is actually a series of reasonably poor seasons, both in Australia and elsewhere, in combination with the fact that US and European governments no longer hold stocks of wheat, so you're seeing a grain market that has very short supplies and people actually scrambling to get supplies.
MICHAEL EDWARDS: And Mick Keogh says when the price of wheat goes up, the effects flow to the rest of the agricultural sector.
MICK KEOGH: We've been through a period of strong prices for wheat, and that has had a flow-on effect through to bakery products, including the price of bread, but it also flows straight through into a range of other areas, for example, poultry and pork and dairy - there's a lot of grain fed to those animals.
MICHAEL EDWARDS: He says the consumer eventually pays at the supermarket checkout.
MICK KEOGH: In some food products, for example, poultry. Poultry meat in Australia, we've seen anywhere between 10 and 25 per cent increase in price over the last six months.
Dairy, for a combination of reasons, we've seen almost a doubling in the price of milk at the farm gate over the last couple of years.
MICHAEL EDWARDS: And the major retailers say there's little they can do.
Margy Osmond is from Australian National Retailers Association - the peak lobby group for many of Australia's largest grocery chains.
MARGY OSMOND: Look, I don't think there's any doubt that if there is an increase, a substantial increase, in wheat prices, that those costs are going to have to flow on. The big retailers have been doing a terrific job of keeping prices down, but I think if there is a substantial increase we may very well be looking at increased prices.
MICHAEL EDWARDS: But some analysts say the price increases need to be put into perspective.
Paul Jensz is an Agribusiness expert from Austock Securities.
PAUL JENSZ: If you look at, I suppose, the amount of money that we as a family, a normal family, would spend on food, say, 20, 30 years ago, well you'd be spending 20 per cent, maybe 25 per cent of our income on food. That's now down to less than 10 per cent, and the prices have been going up for all farmers. So, something has to give.
ELEANOR HALL: That's commodities analyst Paul Jensz from Austock Securities ending Michael Edwards' report.
