Major media around the world have increased their reporting on the shortage and increase prices of feed grains’ deleterious effect on developing countries. BBC News has an excellent, detailed coverage on this subject but let me present a small sampling of the local press, which reveals that the rising grain prices are not regional but truly global:
China Daily: “In a bid to curb inflation, which has been driven by high food prices, the government has been trying to contain the price of edible oil by releasing stocks from the State reserve and putting price restrictions on some oil products. The government has also been working to increase supply by giving more subsidies to producers.”
Chosun Ilbo (South Korea): “…some food and consumer products prices have gone up by a whopping 60 percent. The main reason for the increases is soaring prices of raw materials including wheat, corn, soybeans and oranges as well as oil.”
Philippine Star: “Analysts in Asia have warned that the Philippines, together with Bangladesh, where the poor currently spend around 70 percent of their income simply on food, will be among the first to be hit by rising global food prices.”
RIA Novosti: “Kazakhstan may introduce grain export duties or ban grain exports completely to protect the domestic market…Any grain export restrictions would be aimed at protecting the Kazakh market from grain shortages. Kazakhstan, which is one of the world's top five grain exporters and the world's largest flour exporter, last considered introducing grain export duties in March.”
RIA Novosti: “Russia banned on Monday grain exports to Belarus and Kazakhstan until April 30 in an apparent effort to stabilize domestic bread and flour prices.”
AP News (Egypt): “The bread crisis here in recent days has largely been fueled by the worldwide increase in food prices, which has pushed more people to rely on subsidized bread in an impoverished country where 20 percent of the 76 million population live on less than $1 a day. The result has been bread shortages and riots by customers waiting in long lines at subsidized bakeries.”
BBC News: “UN World Food Program (WFP) and other agencies may be forced to ration food aid due to shortages. Last week, the head of the WFP, Josette Sheeran, warned that global food reserves are at their lowest level in 30 years and that the rise in basic food costs could continue until 2010.”
Reuters: “Across the globe foods from bread to milk have become more expensive and in some countries helped fuel inflation. High prices for rice, beans and other food staples provoked food riots in Haiti this week.”
What Are The Culprits For The Global Food Price Inflation?
According to Reuters report, Jose Graziano, the UN food and farm organization's regional representative for Latin America and the Caribbean is blaming the “Global investment funds and the weak dollar”.[i]
However, The World Bank has a different theory: “Increased bio-fuel production has contributed to the rise in food prices. This has led to increased demand for bio-fuel raw materials, such as wheat, soy, maize and palm oil, and increased competition for cropland.”
“Numerous countries have set standards or targets for use of bio-fuels. The E.U. has set a goal of 5.75 percent of motor fuel use from bio-fuels by 2010. The U.S. has mandated the use of 28.4 billion liters of bio-fuels for transportation by 2012. Brazil will require that all diesel oil contain 2 percent bio-diesel by 2008 and 5 percent by 2013, and Thailand will require 10 percent ethanol in all gasoline starting in 2007. India mandates a 5 percent ethanol blend in nine states, and China is requiring a 10 percent ethanol blend in five provinces.”
BBC News, focusing on rice (but still relevant to other grains) theorizes that there are “Factors contributing to the price rise…”
- Poor harvests resulting from extreme weather
- A rise in demand in some rice-importing countries, where populations and incomes are growing
- The expectation of further price increases - resulting in hoarding
- Low stockpiles and a long term lack of agricultural investment
Risk Assessment Of The Global Food Crisis
For Net Exporters Of Grain, the biggest question that they face is to whether to add to their stockpile or sell into the rising prices. Russia and China, two major exporters of grain, have already placed restrictions on exports and are stockpiling. Thailand and India, two major exporters of rice, may announce some restrictions in the near future. The U.S. may decrease its exports of grain to meet internal demands, especially that of biofuel.
If more grain exporting countries begin to limit exports, and/or more grain is diverted to biofuel production, then I think that the following risk events will increase in their probability of occurrence:
- Grain prices will continue to reach new price highs due to limited world supply (traders will be able to skew the market prices even further with their speculative trading)
- People will begin hoarding grain, leading to more shortage and still higher prices (self-fulfilling action)
- More countries will begin to experience bread lines (less developed and developing countries) or place a limit on the quantity that one may purchase at one time (developed countries)
- There will be sporadic shortages of grain based products, leading to localized panic, vandalism, and protests
- There will be reports of grain carrying ships being hijacked (especially in the South China Sea)
- Border tension and skirmishes between non-friendly nations will increase in frequency, scope, and duration
- Companies will begin substituting other vegetables for grain in their products (potato flakes for breakfast anyone?)
- Mass deforestation of vital rain forests and old growth forests to make room for more farmland (very bad move as it will cause more global climate imbalance)
- Global stagflation brought on by rising food and fuel prices coupled with businesses failures, mass layoffs and devaluation of the local currency (Nations will print more money (fiat currency) to pay for imports, which will cause rampant price inflation)
- Precious metal prices will set new highs
- More catalytic converters will be stolen for their content of platinum, palladium, or rhodium
- Global pollution levels will increase due to reduction in forest cover and production of more fertilizers
- Carbon credits will rapidly rise in value as more nations realize that they will not meet their limits set in the Kyoto Treaty
- Potential for a major outbreak of disease brought on by over farming, malnutrition, and increased pollution
Conclusion
The World Bank’s April 2008 report Rising Food Prices: Policy Options and World Bank Response does not paint a rosy picture of the global food shortage and rapid rise in food prices. The World Bank report’s conclusion is that “Food crop prices are expected to remain high in 2008 and 2009 and then begin to decline, but they are likely to remain well above the 2004 levels through 2015 for most food crops.”
While we in the developed countries bemoan the impact on our wallets, there are people around the world who bemoan the impact on their survival. As more families are forced to cut back on food, malnutrition will increase. This in turn will lead to increased incidents of major illnesses around the world. The overall effect of this will be series of grass root riots that will increasingly grow in size and turn more violent. With more frequent and violent protests, the probability is great that malevolent ideologists will use this opportunity to take control of some of the affected countries.
After all, history shows that the oppressive economic condition – first hyper-inflation, then stagflation, and finally a major depression, all kick-started by the Treaty of Versailles – lead to public discontent in Germany, which made it possible for Hitler and the Nazi party to come into power. This theme reoccurs throughout modern history. John Foran, Professor of Sociology at the UC-Santa Barbara, notes in his research on approximately 36 revolutions in the 20th century that economic change combined with stagnation or deterioration in basic quality of life are two major components of revolutions.
We’ve heard the adage that history repeats itself, albeit in a slightly different form. If we persist on staying the course on the current food shortage and its rapidly rising prices, then we are setting the stage for more revolutions to come. I hope that we do not come to that point.
Enjoy Your Weekend!
Regards,
Ed Kim
riskyops.blogspot.com
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[i] http://news.yahoo.com/s/nm/20080410/wl_nm/brazil_un_food_dc;_ylt=Av6qEl9TR2jlZ0548Y3kgKu9IxIF Sphere: Related Content
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