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Saturday, Feb. 12, 2011
A world of hunger again
Once again, world food stocks are looking precarious. As Mr. Michael Richardson detailed in these pages on Feb. 3, prices are soaring for basic food products and the prospect of hunger, starvation and unrest are rising as well. There are several reasons for this spike in prices, but weather — and climate change — is the most important. It will be difficult if not impossible to insulate food production from weather-related problems in the short term, but steps can be taken to insulate prices from their impact.
According to a U.N. Food and Agriculture Organization (FAO) report issued earlier this month, the seventh consecutive month of food price increases pushed world food prices to record levels last month. The FAO price index, which tracks a basket of 55 food commodities, rose 3.4 percent in January, taking prices to their highest level since tracking began in 1990. Over the past year, the index price of corn has risen 52 percent, wheat 49 percent, and soybeans 28 percent. Ominously, stocks are low and the trend is expected to continue. In total, world food prices rose 25 percent in 2010, forcing countries to spend an estimated $1 trillion on imports — as much as 20 percent more than the year before.
Fortunately for Asia, where rice is a staple food, production and national buffer stocks are rising. According to the FAO, the region's rice harvest in 2010 is expected to reach a record 627 million tons, a 2.1 percent increase over production in 2009. But experts warn that production is not keeping pace with population growth and upward pressure on prices will persist.
There are several factors behind the steadily rising prices. One explanation blames speculators who are exploiting rising liquidity to bet on rising commodity prices. The human cost of those bets — hunger, starvation, civil unrest — is irrelevant to them. French President Nicolas Sarkozy charges those speculators with "extortion and pillaging" and has promised that he will use his term in the chair of the G20 to fix the problem.
A second cause of the spike in food prices is rising demand. Populations increase and even those that are leveling off are shifting demand to meat, which requires more grain for production. At the same time, crop yields are decreasing as agricultural resources are depleted. Another factor is the growing popularity of biofuels, which adds to the demand for — and prices of — some agricultural products.
The most important cause is weather and climate. Shifting weather patterns and extreme weather events are wrecking havoc on harvests. Heavy rains in Australia have decimated that country's wheat harvest, pushing prices of that staple higher. Droughts and fires in Russia and Ukraine did similar damage to those countries' wheat harvests. Equally severe weather took chunks out of harvests in Canada, Brazil and Argentina.
And things could get worse. This week, the FAO warned that China faces similar conditions with its agricultural regions set to experience the worst drought in over half a century. China usually does not attract a lot of attention in this area, but it is in fact the world's largest wheat producer. Most Chinese production is consumed internally and the prospect of domestic shortages means that a government that is hypersensitive to any hint of domestic unrest will turn to international markets to make up the shortfall. With nearly $3 trillion in foreign exchange reserves, Beijing can feed its people at any price even if its determination to do so prices other nations out of the market.
Global warming is creating extreme conditions — yes, even the heavy snows of this year can be attributed to global warming — which damages harvests and drives up prices. In fact, it does not take actual shortages, but just their prospect, to raise prices. The human cost of higher prices is unmistakable. Rising food prices were responsible for riots in over 30 countries in 2008. The recent unrest in Tunisia and Egypt has roots in food shortages, among other factors. For families in developing countries, food can consume 50 to 75 percent of household income. Rising prices force them to choose between food and medication or fuel. As some staples become more expensive, families choose lower quality goods, or sometimes are forced to go without. In each case, the result is declining nutrition and even hunger.
Dealing with climate change will take time. More immediately, governments can do more to rein in the speculation that leads to artificial price inflation. More transparency can be introduced to trading and international reserves can be used as buffers when shortages appear. In 2009, developed nations promised to provide more than $20 billion to aid agriculture in developing countries; $6 billion of that total was intended for a food security fund at the World Bank. Less than $1 billion of those pledges has been paid.
Staple-producing countries must also ensure that their products get to global markets. Export restrictions, like those imposed during the 2008 food crisis, cut international supplies while flooding local markets, thus reducing local prices and the incentive to produce. Of course, creating markets for agriculture producers in developing countries would encourage production there. But that requires global trade reform — and that, like global warming, is a much longer-term project.