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The Global Food Crisis: Scarcity and Rising Prices

The Global Food Crisis: Scarcity and Rising Prices

Domestic News

BACKGROUND:

  • Rising food prices have placed tens of millions into extreme poverty and are reaching “dangerous levels” in some countries, says World Bank President Bob Zoellick. The spike in food prices in 2010 pushed costs up almost equal to the high of 2008—levels that touched off riots in several countries.
  • The sharp spike in food prices over the past six months propelled another 44 million people into “extreme poverty”, meaning they are subsisting on less than $1.25 a day! Countries like Albania, Egypt, and Tajikistan that rely heavily on imported food have seen their public budgets threatened.
  • The costs of some commodities, such as wheat, doubled last year; virtually all other foodstuffs are up an average of 27%
  • Rising food costs are an aggravating factor of the unrest in the Middle East, although not the prime reason. The jump in food prices has led to a real sense of anger and injustice.
  • The rapid rise in food costs are felt disproportionately by the poor, who spend over half of their meager incomes on food. In Tanzania, for example, 67% of a family’s income went to food purchases; In Japan, it was only 12%.
  • The UN Development Fund says it needs $18 billion a year to eliminate hunger and malnutrition, roughly equal to what the US and Europe spend on pet food!
  • The forecast is not encouraging. Bringing down food prices and increasing production could take a decade, since billions of people moving out of the ranks of poverty in the NICs (Newly Industrializing Countries) will be demanding ever increasing amounts of food (especially in India and China). Increasing meat production to satisfy these diets will require more grain for animal feed.

WHAT CAUSED THE SURGE IN FOOD PRICES IN 2010?

  • Wheat prices doubled between June and January as Russia restricted exports following a severe drought and fires (in the Ukraine as well as Russia); the size of China’s winter crop is in doubt because of a continuing drought. Egypt, the world’s largest wheat importer, was rumored to be stockpiling grain to offset a coming shortage.
  • The countries of the Middle East are especially dependent on grain for basic foods—they are essential to the region’s diet. Egypt is a grain producer as well as major importer, but since the building of the Aswan Dam, its farmland has diminished and is not replenished by the annual floods of the Nile.
  • It’s not just wheat worldwide—there have been huge increases in the price of corn, soybeans, sugar and oils. As the US emphasizes grinding corn into ethanol, a significant percentage of the corn that was available for the global food market has gone away. The US ethanol subsidy diverted more than 100 million metric tons of corn into ethanol last year, more than 1/3 of our corn crop (tell me again why we are subsidizing the production of ethanol and taking all that corn off the world market?).
  • The spike in oil prices has pushed up fertilizer prices, as well as the cost of transporting farm products.
  • Many commentators blame climate change for the decline in food production. Indeed, dramatic weather changes did affect the global output last year—the droughts in China and Russia, the extremely hot temperatures in Russia and throughout the world (19 countries had record high temperatures last year). But attributing the cause of the spike in food prices to climate change seems very tenuous given that the weather patterns we saw last year have been far from typical. In fact, wheat production and grain prices have been remarkably steady over the past 30 years, with price jumps as seen in 2008 and last year abnormal. Further, some speculate that global climate change will actually create more arable land, particularly in Africa.
  • The global grain shortage has lead to speculation and panic buying. Several nations, including China and Russia, have stockpiled grains and prohibited or limited exports.
  • Several countries are subsidizing food prices, stockpiling grains, halting exports, and capping prices, all extremely inefficient and a severe burden on governments.
  • The World Food Organization, the World Bank, and other entities will note that something must be done to promote greater efficiency in Egyptian and other Arab nations’ crop productivity. Local (Arab) yields are only 18 bushels per acre, compared to 30 to 60 for non-irrigated land in the U.S., and 100 bushels for irrigated land. Progress on that front is likely to be slow.
  • World food production has actually outpaced global population growth. However, as prosperity spreads, families consume more (especially meat), thus pushing up demand per capita. Crises occur when sudden reductions of output occur, usually because of bad weather, as happened last year.

CONSEQUENCES OF THE GLOBAL FOOD CRISIS:

  • Increasing food prices are a major problem, especially in poor nations with large urban populations. The increases cause political instability, bad economic decisions, and real hardships.
  • Those hit hard are striking out against real or perceived culprits. They are blaming their own governments for failing to protect them. This, as said above, has been a factor but not the key driving impetus, in the protests and riots we are seeing in the Mideast (except maybe in Jordan). However, if conditions worsen, food costs may jump to the top of protestors’ demands (many revolutions, including the Russian Revolution in 1917, had demands for bread—“Xleb”–as the banner cry.)
  • Look for bogeymen to emerge as culprits as well. Some Fed critics have blamed Chairman Ben Bernanke, attributing the crisis to the Fed’s easy money policies, that in turn provides money for investing in speculation on commodities, stockpiling and waste….French President Sarkozy blames speculators, accusing them of pillaging and extortion….Others see the crisis as an outgrowth of the rise in global expectationsengendered by the world-wide industrial surge.
  • Some Arabs probably feel that Asian prosperity is to blame—Asians have become so rich that they are increasingly switching to more meat in their diets and will consume their grains regardless of the price, leaving destitute Arab nations scrambling for the crumbs. Others believe that China, assessing that the dollar will drop and therefore reserves of that currency need to be reduced, has decided to stockpile grains instead as a “hedge”.
  • The rapid jump in food prices, especially grain, is a moral as well as a security crisis. Billions live on the edge of extreme poverty—many will perish from the inability to secure basic foodstuffs.
  • The food crisis will become more of a driving factor in the unrest threatening formerly stable autocracies, and, if prices continue to surge, will fuel more anger and unrest. If, as in Egypt, the protests/revolutions succeed, then the subsequent governments will be expected to mitigate the crisis and make foodstuffs available at reasonable prices. When they can’t, the transition governments—probably semi-democratic—will become prey to those offering more extreme solutions to redress citizen demands. (Enter the Muslim Brotherhood, following the path of the Bolsheviks, National Socialists (Nazis), and Revolutionary Guards)!