Global Food Crisis Fears Abate

Fears of a major global food shortage appear to have abated since the first part of the year, with food prices declining slightly from their peak and prospects for the overall supply slightly brighter.

However, prices for specific commodities such as rice, maize and wheat continue to be volatile, according to the World Bank’s Food Price Watch report, which was published earlier this week. After peaking in February, the bank’s food price index for the period April to July averaged 278.3, or roughly 5 percent below its top.

Despite the slightly improved situation, there are plenty of sources of uncertainty. Global stocks remain alarmingly low, and food prices remain up 33 percent year-on-year according to the bank’s report, sinking millions of poverty-stricken people into malnutrition or starvation. Average prices for maize are up 84 percent over a year ago, sugar is up 62 percent and wheat is up 55 percent.

Concerns about drought and climate change, which were acute a year ago, have eased, particularly for wheat. Largely beneficial weather has supported the global wheat crop, meaning prices should remain steady barring catastrophe, according to other reports.

Beneficial harvesting conditions in Russia and the Ukraine, with massive wildfires a year ago, have led Russia to open its export markets on July 1. So far the country has exported a record 2 million metric tons of wheat, undercutting European and US growers by as much as US$40 a ton in an effort to win back business lost when it shut its doors to exports earlier. Unlike last year, rains in Russia have been abundant, with warm conditions, leading analysts to upgrade the country’s output by 3 million tons.

Regular rains in Western Australia have also pushed up whet yields, with the state’s crop expected to double to 9 million tons. The Indian government is also debating whether to reopen its export market, with stocks three times the government target level and in danger of rotting.

Significantly, Pacific Ocean temperatures have remained neutral according to the National Oceanic and Atmospheric Association, which means weather conditions should remain benign for the near future with no El Nino-La Nina weather phenomenon around to wreak havoc on crops.

The same can’t be said for the US corn (maize) crop, where record temperatures and drought have afflicted the main growing areas in the Midwest. Prices have rebounded by 15.7 percent since their July 1 low. At the same time, according to the World Bank report, the stocks-to-use ratio currently stands at 13 percent, the lowest since the early 1970s. “At these low stock levels, even small shortfalls in yields can have amplified effects on prices,” the Bank said. Indeed, prices may well have further to rise, having rebounded 15.7 percent already since their 1 July low. In the first four months, US demand for maize used in the production of biofuel increased by 8 percent year on year, a trend that “may continue given the prevailing uncertainties in the energy market,” the World Bank said.

It isn’t so much rising daytime temperatures that are damaging world crops, crop scientists say. It is rising nighttime temperatures. If nighttime temperatures remain above 18C (65F), maize loses sugar to respiration, leaving less sugar available for crop growth. Ideal growing temperatures for maize are generally quoted at a high of 13-14C at night and 29C during the day. Average overnight lows have hit record temperatures in several Corn Belt states, often remaining with temperatures remaining in the 70sF.

The same problems afflict rice. As Asia Sentinel reported on Aug. 12, 2010, increases in carbon dioxide levels and temperature can decrease rice yields because they make rice flowers sterile. Nighttime temperature rises of 1C may reduce rice yields by as much as 10 percent, according to the Philippines-based international Rice Research Institute. For some countries, rice prices remain significantly higher in comparison to the same point last year, the World Bank said Price prices were up 23 percent in Pakistan.

While the US soybean crop is down slightly, Chinese import demand is off rather dramatically – China makes up 58 percent of global demand. Demand from the mainland is expected to be down by as much as 34 percent in August, meaning prices will probably remain stable, especially as dry winter weather in Brazil has meant that soyabean rust, a major problem, is not as bad as usual. Brazilian stocks may hit a record 20.3 million metric tons, officials say, which should provide a cushion provided production doesn’t hit expected levels or Chinese import demand resumes.

Prices of other commodities, however, mean that overall food prices are hostage. Uncertainties about the global economy, given the political turmoil in the Middle East and North Africa, mean that petroleum products will also have an important bearing on food prices. Brent crude is up by 10 percent from February. Both oil and fertilizer play a major role in the level of food prices.

There is also the problem of inflation. In Ethiopia, consumer price inflation rose to 38 percent year on year in June, for instance. Food prices were also critical drivers of inflation in China, where the price of pork, shrimp, and fish registered sharp increases in the recent quarter, the Bank said. Food price inflation in China stood at 14.6 percent in the year leading up to June 2011. Food price inflation was similarly high in Vietnam (30.6 percent), but like China, the increase was driven not by cereal grains but by locally produced food items such as meat, fish, and vegetables.

Local food market factors along with macroeconomic factors appear to have played a key role in food inflation in both countries. However, inflation in these countries is expected to moderate in the near future as local supply improves and assuming monetary policy is tightened to address macroeconomic vulnerabilities.

In all, the food price report paints a mixed picture. Horrific conditions continue in the Horn of Africa, where the World Bank estimates that as many as 12 million people are in urgent need of humanitarian assistance as a result of drought, civil unrest and the long-running humanitarian disaster that is Somalia. The acute malnutrition rate in some areas of Somalia has exceeded 40 percent among children under five years of age. Of 3.7 million people in in the Somali crisis, 3.2 million are in urgent need, 2.8 million of them in the south. Domestic food prices have been soaring, with prices of the two major commodities, red sorghum and white maize, up by 30 to 240 percent. Those are not so much food problems, however, as problems of human folly.