Expensive Oil is far from being the Only Problem

"The greatest challenge to the world is not US$100/barrel oil. It's getting enough food so that the new middle class can eat the way our middle class does," says Donald Coxe, global portfolio strategist at BMO Financial Group, at the Empire Club's 14th annual investment outlook in Toronto.

The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire. "It's not a matter of if, but when," he warned investors. "It's going to hit … hard."

The impact of tighter food supply is already evident in raw food prices, which have risen 22% in the past year. Wheat prices alone have risen 92% in the past year.

Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India, as well as heavy demand from the biofuels industry.

With 54% of the world's corn supply grown in America's mid-west, the U.S. is one of those countries with an edge. But Mr. Coxe warned U.S. corn exports were in danger of seizing up in about three years if the country continues to subsidize ethanol production. Biofuels are expected to eat up about a third of America's grain harvest in 2007.

[Excerpt of article by Alia McMullen, Financial Post]