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Bread and butter issue: Rising prices may herald the first global food shortage since the 1970s
FT ^ | 10/23/07 | Jenny Wiggins and Javier Blas in London

Posted on 10/24/2007 10:53:18 PM PDT by TigerLikesRooster

Bread and butter issue: Rising prices may herald the first global food shortage since the 1970s

By Jenny Wiggins and Javier Blas in London

Published: October 23 2007 19:11 | Last updated: October 23 2007 19:11

When the United Nations held its annual World Food Day last week to publicise the plight of the 854m malnourished people around the world, its warning that there “are still too many hungry people” was a little more anxious than usual.

Finding food to feed the hungry is becoming an increasingly difficult task as growing demand for staples such as wheat, corn and rice brings higher prices. That is leading all nations – rich and poor – to compete for food supplies.

 

Food security is not a new concern for countries that have battled political instability, droughts or wars. But for the first time since the early 1970s, when there were global food shortages, it is starting to concern more stable nations as well. “The whole global picture is flagging up signals that we’re moving out of a period of abundant food supply into a period in which food is going to be in much shorter supply,” says Henry Fell, chairman of Britain’s Commercial Farmers Group.

As agricultural commodities trade at record high levels, causing one food manufacturer after another to put up prices – Danone, the French dairy group, this month became the latest to reflect the severity of the cost increases when it said it would increase prices by 10 per cent – countries are starting to question whether they can afford to keep feeding themselves.

Wheat and milk prices have surged to all-time highs while those for corn and soya­beans stand at well above their 1990s averages. Rice and coffee have jumped to 10-year records and meat prices have risen recently by up to 50 per cent in some countries.

“The world is gradually losing the buffer that it used to have to protect against big swings [in the market],” says Abdolreza Abbassian, secretary of the grains trading group at the UN’s Food and Agriculture Organisation. “There is a sense of panic.”

Per capita income and food weighting in CPI

Some of the price rises are the result of temporary problems, such as drought in Australia, and diseases, such as blue-ear in Chinese pigs. But there is a more permanent increase in demand from Asia, as richer populations in China and India demand more protein, and from the biofuel industry, which is on course to consume about 30 per cent of the US corn crop in 2010 – developments that will underpin prices for the medium term.

The FAO estimates that those structural new trends will help to push the cost of agricultural commodities in the next decade between 20 and 50 per cent above their last 10-year average.

This is a problem for economies where food represents a significant share of their imports payments. The International Monetary Fund says higher food prices are hurting poorer nations in Africa, such as Benin and Niger, as well as a number of countries in Asia, from Bangladesh to China itself, and parts of the Middle East.

The difficulties are compounded because the importance of food in overall consumer spending is negatively correlated with income levels (see chart). For example, food is more than 60 per cent of the “consumption basket” measured by economists in sub-Saharan Africa, whereas it is 30 per cent in China and only 10 per cent in the US, according to the IMF.

For countries that export grains and other commodities, such as the US, Australia or Canada but also Argentina and Namibia, high prices are lucrative at a macro­economic level and for the businesses and farmers involved. But there, too, consumers suffer. In Italy, which imports around half its durum wheat needs, people took to the streets this summer to protest at higher pasta, bread and milk prices.

Grain exporting countries have consequently started restricting the amount of grain they export, postponing sales or imposing in some cases prohibitive export tariffs to keep their local market well supplied, avoiding politically damaging food price increases.

In Russia, which faces parliamentary elections in December and where President Vladimir Putin has said he was “worried about price growth, especially food prices growth”, the government has introduced export duties on wheat and barley and is discussing further tariff increases. Russian food retailers, under pressure from the Kremlin, have meanwhile agreed to freeze prices on some basic foodstuffs to help cool down inflation.

Neighbouring Ukraine is considering export quotas on corn, barley and wheat.

Food price inflation

At the same time, food importing countries have started to look for ways to increase their domestic production or build emergency stocks as a buffer against sharp price increases or shortages. For example, Pakistan plans to import more wheat than it does normally to make sure it has enough to feed its population. India has also bought more than necessary in order to build up its stocks.

The European Union has suspended its “set-aside” rules that bar farmers from planting cereals on 10 per cent of their land. The rules were designed to avoid over­production but Brussels is now worried that there will not be enough cereals to meet demand. In the US, however, the Department of Agriculture has decided against allowing land to be released early from the Conservation Reserve Program that, similarly to the EU’s set-aside, pays farmers not to plant on some of their arable land.

Analysts and traders say farmers are likely in the 2008 crop season to plant more wheat at the expense of cotton and, to a lesser extent, corn, barley and soyabeans. This means that, while wheat prices may fall next year, crops such as cotton and corn might jump in value because of the reduced supplies.

State finances are also being imperilled, as countries that import much of their food have started to increase subsidies paid to food producers to compensate for higher costs and scrapped import tariffs. Akhter Ahmed, a subsidies expert at the International Food Policy Research Institute, a Washington-based think-tank, says international agricultural prices are directly linked to the cost of food importing countries’ subsidies. “The recent price increase is going to be a drain for government budgets,” he warns.

The FAO has forecast that the lower-income “food-deficit” countries will next year spend more than $28bn (£14bn, €20bn) on importing cereals, double what they spent in 2002. “The combination of higher export prices and soaring freight rates is pushing up domestic prices of bread and other basic food in importing developing countries, which has caused social unrest in parts,” the organisation said in its latest Crop Prospects and Food Situation report.

Egypt, which experienced the “Bread Intifada” riots in 1977 when the government raised bread prices, last month said it was increasing the subsidies it pays to bread producers in the light of ongoing increases in global wheat prices.

Certainly, there is currently little chance of subsidies being lowered by many developing countries. Abah Ofon of Standard Chartered Bank says that for countries such as Morocco, where a large proportion of the population lives close to or below the poverty line, wheat is a staple part of people’s diet and therefore “eradicating subsidies is tantamount to political suicide at this stage”.

In China, the government is providing larger subsidies to farmers to increase agricultural production, particularly of pork and milk after the country suffered a price spike this year. Beijing also plans to increase subsidies to low-income urban residents and student cafeterias while it has cut soyabean import duties in order to keep prices down.

Commodity analysts in part blame the US and Europe for the current price increases. They say the heavy subsidies placed on agricultural produce by the American and European governments in recent decades have made investment in agriculture unprofitable for many other countries because they have found it hard to compete.

Jeffrey Currie, head of commodities research at Goldman Sachs, says the relatively low investment in agriculture outside the US and Europe is coming back to haunt European and US consumers in the form of higher food prices as global supplies of agricultural produce fall behind demand.

The world’s leading agricultural exporters are the EU (led by France, the Netherlands, Germany and the UK) and the US, followed by Brazil, Canada and Australia.

“The US and Europe were exporting agricultural deflation; now they’re exporting agricultural inflation,” Mr Currie says.

The IMF adds that western countries’ biofuel policies are also behind the current problem. “One country’s policy to promote biofuels while protecting its farmers could increase another, likely poorer, country’s import bills for food and pose additional risks to inflation or growth,” says the institution in its latest World Economic Outlook.

This impact would be mitigated if the US and the EU reduced barriers to biofuel imports from developing countries, such as Brazil, where production is cheaper, more efficient and environmentally less damaging, the IMF adds.

In the near future, demand for agricultural raw materials is likely to continue rising in world markets as countries that have previously been able to meet their own food needs start importing more, increasing the global challenge of feeding populations. Don Mitchell, an economist at the World Bank, says: “Although China and India are relatively self-sufficient in food, some economists doubt that this can continue as incomes rise and [think] that they will need to rely much more on imports.”

The FAO expects India to import more wheat and China to increase imports of coarse grains to supply feed to its livestock industry. Both countries are also expected to increase imports of oils that are used in food production, such as palm oil. The World Bank estimates that cereal production will have to rise by nearly 50 per cent and meat output by 85 per cent between 2000 and 2030 to meet projected global demand.

Developed countries are not immune. In the UK, the Department for Environment, Food and Rural Affairs acknowledged in a December paper that food security was becoming a “matter of concern”.

Kate Bailey of Chatham House, the London think-tank, says Britain’s food supply is facing “huge change” due to shifts in global trade patterns. Policymakers may have to return to thinking about food as a “strategic asset”, she adds – even in a nation that has not been self-sufficient in food since the Industrial Revolution.



TOPICS: Business/Economy; Extended News; News/Current Events
KEYWORDS: foodprice; foodshortage; tlr
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1 posted on 10/24/2007 10:53:21 PM PDT by TigerLikesRooster
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To: Hydroshock

Ping!


2 posted on 10/24/2007 10:53:41 PM PDT by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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To: TigerLikesRooster

Perhaps the price of corn and other cereals would not be as high if... we weren’t mandating that we burn ethanol in our gas tanks.

Which drives the price of corn up... which leads farmers (who want to make money) to plant the crops (corn) that are selling at the highest price.

Which then drives up the price of other crops, as there isn’t enough farmland currently to pick up the slack.


3 posted on 10/24/2007 11:34:32 PM PDT by gogogodzilla (Republicans are just Socialism-lite.)
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To: TigerLikesRooster

One thing is certain - prices aren’t going to be getting any lower in the near future.

So, when we see those ‘two-fers’ on products that we use or consume regularly, we may want to take advantage of the price, and do a little stock up.


4 posted on 10/24/2007 11:44:44 PM PDT by yorkie
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To: gogogodzilla

Government shouldn’t be creating artificial demand.

At the same time, if prices of wheat and other common staples go up, more farmers will grow it and supply will increase. That’s what free markets do.


5 posted on 10/24/2007 11:49:09 PM PDT by DB
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To: gogogodzilla

You’re onto something there. The sad part is that ethanol isn’t necessary. But I guess that’s the way it goes.


6 posted on 10/24/2007 11:59:07 PM PDT by squidly
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To: squidly

Just another reason ethanol is a bad idea.....for our cars AND our economy.....


7 posted on 10/25/2007 3:38:08 AM PDT by seeker_two
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To: gogogodzilla
Any country stupid enough to burn food as fuel has idiots making policy. The worst part is we have actual fuel that could be available if those same idiotic policy makers wouldn't have placed potential oil fields off limits. We could earnestly try to develop extraction methods for the Green River Formation where the US has some 1 trillion barrels of oil (3 times the reserves of the Saudis) locked into shale.

We could have lessened our dependence on oil and natural gas if the idiots making policy hadn't cowed to the watermelons regarding nuclear generation. We have listened for too long the those who "care" for the planet and every living thing (except for humans). It's time to remind those forced to pay ever higher prices for energy and food why those prices are higher than they should be and who's policies of environmentalism have brought us to such a reliance on foreign oil.

8 posted on 10/25/2007 4:35:08 AM PDT by Sgt_Schultze
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To: TigerLikesRooster
The basis for this article is false. There is no more a “shortage” of food then there is a “shortage” of water. If anyone lacks sufficient food (or water for that matter), it is due to their inability, or unwillingness to afford it. We can have, for example, all the corn we want if we are willing to pay more for it than the local ethanol refinery.

The real story is how many millions of people have been denied, by their governments and societies, the opportunity or even the ability to earn enough to take care of their basic needs.

9 posted on 10/25/2007 4:35:22 AM PDT by theBuckwheat
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To: TigerLikesRooster
Well, duh....the price of energy is following the same trend as food, especially oil, gasoline, diesel, and natural gas, and as those specific engine fuels shoot up in prices, so does the cost of planting, cultivating, harvesting, transport of raw foods and processed foods.

Food, water, and energy, China will throw the first stone 9Russian territories in the far east) and they continue to destroy their environment with pollution.

10 posted on 10/25/2007 4:45:29 AM PDT by RSmithOpt (Liberalism: Highway to Hell)
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To: TigerLikesRooster

It’s good that we are trying to save the world from “global warming” by putting food in our gas tanks.


11 posted on 10/25/2007 4:45:40 AM PDT by HenpeckedCon (Can I please freep just a little while longer Dear?)
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To: theBuckwheat

As long as the government mandates the use of ethanol, the refineries WILL pay whatever price necessary to get the corn.

And multi-billion dollar industries have deeper pockets that you or I.

So who do you think will end up with the corn? You... or the refinery?


12 posted on 10/25/2007 6:09:40 AM PDT by gogogodzilla (Republicans are just Socialism-lite.)
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To: TigerLikesRooster

Never underestimate the American farmer’s ability to overproduce!
The local corn price here is $2.57/bushel. Not much higher than usual. The markets did their job. The best cure for high prices is high prices. There are ethanol plants suspending operations because the price of corn is too high relative to the ethanol price. It doen’t appear they can pay any price. All of you need to get a clue.


13 posted on 10/25/2007 6:44:40 AM PDT by clodkicker
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To: gogogodzilla; HenpeckedCon; RSmithOpt; Sgt_Schultze; squidly
and from the biofuel industry, which is on course to consume about 30 per cent of the US corn crop in 2010 –

We need to keep saying it until it sinks in to the average folks...

The earth is awash in fuel resourses, stop BURNING our friggin food !!!

14 posted on 10/25/2007 6:51:58 AM PDT by Gilbo_3 (A few Rams must look after the sheep 'til the Good Shepherd returns...)
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To: gogogodzilla
as there isn’t enough farmland currently to pick up the slack.

We have WAY more farmland than we need to produce our food.

We have so much farmland, and production capacity that we can be so foolish as to raise 'organic' foods, which requires twice as much land to produce the same quantity of lower quality foods.

We have so much farmland that we can even BURN a lot of our feedstuffs, and still have excess.

The rest of the world is too stupid to install a capitalistic economic system, and as a result they are always on the verge of starvation.

Let the stupid people starve to death.

As they do so, lets flaunt our capacity to produce a tsunami of grains and our foodstuffs. Lets raise organic, lets burn our food, and lets all gorge ourselves on the most abundant and best foods ever raised in the entire history of the world.

HATS OFF TO THE AMERICAN FARMER!

15 posted on 10/25/2007 7:11:38 AM PDT by Balding_Eagle (If America falls, darkness will cover the face of the earth for a thousand years.)
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To: gogogodzilla
the refineries WILL pay whatever price necessary to get the corn.

Ah, it's not really a good idea for posters to flaunt their own ignorance.

16 posted on 10/25/2007 7:13:29 AM PDT by Balding_Eagle (If America falls, darkness will cover the face of the earth for a thousand years.)
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To: clodkicker
However, as with the housing bust / mortgage fraud, never underestimate the middle-man's ability to skim (inflate) the true cost of a gallon of hooch for your 'Mustang' and flip off the farmer at the same time.

Then, common folk will flip-off the middle-man and then feed the corn bought from the co-op to their horses and make their own 'shine to fuel their vehicles with hand pumps and in the meantime, thin their blood while waitin' on the mash to sour up. Ain't hard to do. Gonna be a lot off copper layin' around in houses that people can't buy.

Just make the juice in the winter and heat the house at the same time.....maybe a basement with a large fireplace and use it as a tax deduction for an at home office / business.

Hell' I figure if the gov ain't gonna enforce immigration laws, then why bother with the manufacture of spirits? Gonna be some rich farmers an a huge demand for cast iron bathtubs for the DIY'rs.

17 posted on 10/25/2007 7:13:50 AM PDT by RSmithOpt (Liberalism: Highway to Hell)
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To: Balding_Eagle
"HATS OFF TO THE AMERICAN FARMER!"

BUMP!!!

BUMP!!>

BUMP!!

18 posted on 10/25/2007 7:16:15 AM PDT by RSmithOpt (Liberalism: Highway to Hell)
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To: theBuckwheat

Yes.

See my post #15


19 posted on 10/25/2007 7:23:28 AM PDT by Balding_Eagle (If America falls, darkness will cover the face of the earth for a thousand years.)
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To: theBuckwheat

Don’t go using common sense and truth to take away anyone’s misplaced outrage. :-}


20 posted on 10/25/2007 7:33:11 AM PDT by tiki
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