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Important news about the global food crisis!

1 April 2008

Summary — this post contains three sections (also note the updates at the end)

  1. Reporting indications of a global food crisis.
  2. Research suggesting it could become much much worse.
  3. Analysis on the scope and significance of the problem.

It is not now clear if we have a serious problem, or just a temporary abundance of bad news.  With global grain stockpiles at 30 year lows, even minor temporary disturbances can have serious effects.  Or we might have a combination of serious commodity inflation, increased demand (third world prosperity) and long-term supply problems (e.g., climate and/or pest cycles).  This deserves close attention, as the geopolitical effects could be severe. 

One lesson learned should be obvious:  it was imprudent to reduce global grain stockpiles because of the minor financial costs of maintaining them.

I.  Recent reports indicating we may have a global problem with the global food supply

High Rice Cost Creating Fears of Asia Unrest“, New York Times (29 March 2008) — Excellent summary!  Excerpt:

HANOI – Rising prices and a growing fear of scarcity have prompted some of the world’s largest rice producers to announce drastic limits on the amount of rice they export.  The price of rice, a staple in the diets of nearly half the world’s population, has almost doubled on international markets in the last three months. That has pinched the budgets of millions of poor Asians and raised fears of civil unrest.

Shortages and high prices for all kinds of food have caused tensions and even violence around the world in recent months. Since January, thousands of troops have been deployed in Pakistan to guard trucks carrying wheat and flour. Protests have erupted in Indonesia over soybean shortages, and China has put price controls on cooking oil, grain, meat, milk and eggs.

Food riots have erupted in recent months in Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen. But the moves by rice-exporting nations over the last two days – meant to ensure scarce supplies will meet domestic needs – drove prices on the world market even higher this week.

This has fed the insecurity of rice-importing nations, already increasingly desperate to secure supplies. On Tuesday, President Gloria Macapagal Arroyo of the Philippines, afraid of increasing rice scarcity, ordered government investigators to track down hoarders.

… Vietnam’s government announced here on Friday that it would cut rice exports by nearly a quarter this year. The government hoped that keeping more rice inside the country would hold down prices.

The same day, India effectively banned the export of all but the most expensive grades of rice. Egypt announced on Thursday that it would impose a six-month ban on rice exports, starting April 1, and on Wednesday, Cambodia banned all rice exports except by government agencies.

Governments across Asia and in many rice-consuming countries in Africa have long worried that a steep increase in prices could set off an angry reaction among low-income city dwellers.

… “There is definitely the potential for unrest, particularly as the people most affected are the urban poor and they’re concentrated, so it’s easier for them to organize than it would be for farmers, for example, to organize to protest lower prices,” said Nicholas W. Minot, a senior research fellow at the International Food Policy Research Institute in Washington. …

Here is a typical incident, of a type appearing across the globe.

Cote d’Ivoire: Food price hikes spark riots“, UN Integrated Regional Information Networks, (31 March 2008)

At least a dozen protestors were wounded during several hours of clashes with police on 31 March as they demanded government action to curb food prices. 

A serious global crisis usually requires multiple causes for drivers (there was no single cause for the Titantic’s sinking).  Now we have global inflation, a 30 year lows in global gain stockpiles, increased diversion of food crops to biofuels, and some critical areas hit with bad weather.  Here is one candidate that could push this into a global disaster.

II.  It could get much worse

Killer wheat fungus a threat to global food security?“, UN Integrated Regional Information Networks  (27 March 2008) — Excerpt:

The Ug99 strain of the killer wheat fungus (stem rust), which recently infected wheat farms in western Iran, is a serious threat to global food security, agricultural scientists have warned. They have said the fungus may affect additional wheat-producing countries.

Mahmoud Solh, director-general of the International Centre for Agricultural Research in the Dry Areas (ICARDA), was quoted in a 20 March ICARDA press release as saying that he and his fellow scientists were convinced that Ug99 would quickly spread beyond Iran and that, with the long distance travel of rust spores, Ug99 would soon affect farms in the Middle East, Central Asia, South Asia and East Asia.

Richard Brettell, director of the Biodiversity and Integrated Gene Management Programme at ICARDA, told IRIN on 26 March that halting the spread of the stem rust spores is difficult since they are dispersed by the wind. “The fungus can to some extent be controlled by the application of fungicides [as a spray]; however, these need to be applied at an early stage of infection before the disease takes hold,” he said.

Brettell said the most effective way of controlling the disease is to grow resistant varieties. But he warned: “The problem is that almost all the wheat varieties grown in West and South Asia are known to be susceptible to Ug99. It will take time and coordination to replace them with resistant varieties.”

III.  Analysis

As usual in the early stages of an event, we have much reporting but little analysis.  Here is one of the rare early reports, an analysis of conditions in China but also providing a global context.  I strongly recommend reading this! 

The China-Tibet Inflation Black Swan and Global Implications“, Philippa Malmgren, Asymmetric Threats Contingency Alliance (19 March 2008)

We are grateful to the distinguished ATCA Contributor, Dr Philippa Malmgren — a former Presidential Advisor to the White House and now founder of The Canonbury Group and the online publication Policy and Markets — for her submission, “The China-Tibet Inflation Black Swan,” having just returned from China.

Dear DK and Colleagues

The most dramatic change on the landscape is neither the recent failure of Bear Stearns nor the dramatic action taken by the Fed in response to it. The most important development on the global economic landscape is that the inflation problem in China is now so great that it is giving rise to social unrest on a scale that requires a military response.

Update from Indonesia

Kevin O’Rourke, Jakarta-based author of the Reformasi Weekly report on Indonesian politics, provided a local perspective on the food situation.  It has been moved to its own post:  A view from Indonesian of the food crisis.  It is worth reading!

Update

The causes of the current problems with our food supply are probably cyclical.  Normal cycles, like winter following summer.  The problem results from our failure to prepare for these cycles, as in the story of the ant and the grasshopper.  Such as maintaining large stockpiles and a modest surplus (“excess”) production capacity.  Note that doomsters greet every arrival of winter (down cycles) as the end of life as we know it, which is an error as serious as failure to prepare winter.

Please share your comments by posting below (brief and relevant, please), or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For more information about this subject

  1. A view from Indonesia of the food crisis  (3 April 2008)
  2. Stratfor warns about the global food crisis  (18 April 2008)
  3. What you probably do not know about China’s food crisis  (21 April 2008)
  4. Higher food prices, riots, shortages – what is going on?    (29 April 2008)
  5. A modest proposal for solving the global food crisis  (30 April 2008)
  6. Weekend reading about the Food Crisis  (17 May 2008)

This archive shows all posts about the food crisis, plus reports from from major international agencies.

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4 Comments leave one →
  1. Duncan Kinder permalink
    1 April 2008 5:32 am

    The United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), in its 2008 Economic and Social Survey of Asia and the Pacific, “Sustaining Growth and Sharing Prosperity” cites biofuels and weather disruptions as the major causes of food inflation. According to the report’s Executive Summary:

    Food inflation – the next big challenge: Inflation in the developing economies of the region is projected at 4.6% in 2008, down from 5.1% the previous year, with currency appreciation cushioning the impact of high oil and food prices. This projection, however, is subject to some uncertainty. The key question is how much last year’s surge in prices will continue in 2008 and beyond. Oil prices are expected to decline from the record levels at the beginning of 2008 as the industrial economies slow, led by the United States. Food prices are likely to remain high, posing a greater inflationary risk because food accounts for a far higher proportion of consumer spending.

    The rising food prices in 2007 were due in part to drought in Australia, flooding in China and dry weather in Europe. Added pressure came from the demand for biofuels. With the march towards biofuels apparently unstoppable, governments need to consider carefully the impact on the poor. ESCAP analysis shows that the poor have so far benefited little from the biofuel revolution despite its opportunities for lower income groups.
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    Fabius Maximus: Thanks for the link to this! It matches what research I’ve seen. Two notes: First, multi-decade lows in grain stockpiles exacerbate these impacts. Second, biofuel use is now aprox 1% of total liquid fuel consumption. Food prices would be lower w/o biofuels, but oil prices w/b higher. The net trade-off: unknown, probably varying by crop. Converting corn to ethanol is absurdly inefficient, a way to burn tax dollars to warm farmers. Rapeseed? Sugan? Palm Oil? They each have their own economics and trade-offs.

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  2. OldSkeptic permalink
    1 April 2008 9:43 am

    Well the much critised ‘Club of Rome’ were right. The only ‘mistake’ they made was that they never envisaged that to increase food production agriculture would move to a ‘mining’ model.

    Translated, to unsustainable practices. Unsustainable in that the current model depends on: mining phosphates (well past the peak now), energy (particlarly oil), mono-strains (well predicted for decades that this increases vulnerability), ‘mining’ water (ie using water at a faster rate than it is replenished).

    So it now hits the fan. Whoopie do, I can give you scientific predictions from 20 years ago that said this would happen. Bit like global warming, no one listened until it is too late.
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    Fabius Maximus replies: I do not believe we have sufficient evidence that any of the Club of Rome forecasts will prove accurate (from memory, they forecast only on a 100-year+ horizon) — with the exception of oil. Most natural resources are far cheaper, adjusted for inflation, than when the Club’s report was written — showing greater availability, not less.

    The current problems are, as the UN report in previous comment indicates, probably the result of bad monetary policies and weather. Just like the 1970’s, which also sparked many “the end is near” forecasts.

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  3. 2 April 2008 12:12 am

    Agricultural prices are going up just like many other raw material prices. It’s a kind of global cycle and might indeed hint at shortages. Not all raw materials rise in price, but most – since years.
    I am sure that Europe (including EU and Russia) has significant reserves and could produce much more food. A move away from meat to grain would also increase overall food production.
    We just need to stop the bio-fuel nonsense and should re-activate some areas.

    Btw, the Iranian story will certainly result in some conspiracy theories.
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    Fabius Maximus: A clarification… raw material prices, adjusted for inflation, fell from the early 1980’s until aprox 2000. During this time many producers — and even more of their equipment suppliers — went bankrupt. For example, in 2000 — 2002 it looked like the entire US coal industry would go broke. Prices had to recover. So prices have just began to recover. They could rise far more, under the influence of monetary stimulus, supply shocks, and rising demand.

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  4. judasnoose permalink
    2 April 2008 4:51 am

    Bear in mind that not all riots are equally damaging. If there’s a riot in Seattle, that’s one thing. If there’s a riot in Dehli, that’s a very different thing. And if there were a riot in Burkina Faso, would anyone in the rich countries even notice?

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