World Dares Another Food Crisis

The world could be facing its third major global food crisis within the past five years as climate change has driven extreme drought and abnormally high temperatures across the grain producing areas of the United States, Brazil, Russia and Ukraine.

In particular, 31 states in the US Midwest – which happen to be the epicenter of US climate change denial on the part of Republican lawmakers – have been hit with the driest conditions in 56 years, according to a report issued last week by the Seoul-based Samsung Economic Research Institute (SERI).

Unlike the food crises which began in 2007 and 2011, the rising agricultural prices are occurring when the global economy is in a downward cycle and food prices have been expected to ease along with the economy. The fact that they are not falling is ominous. Global grain production is predicted to decline annually by 2.7 percent due to climate change, the report notes, meaning that the harvest can be expected to be short of projected consumption by 40 million tonnes

The United States and climate change

Red state, blue state, hot state, cool state: Red states are Republican, largely deny global warming. Right-hand map denotes areas of deepest drought.

According to the United States Department of Agriculture, wheat production is expected to drop 4.7 percent, corn 3.2 percent and rice 0.4 percent. In the US, corn production is predicted to plunge 12.8 percent and soybeans 11.9 percent, according to the USDA. Wheat production in the Urals appears to be hardest hit. Russia, the third largest wheat producer, will likely decline 23.5 percent, 51.6 percent in Kazakhstan – the eighth largest- and 32.2 percent in Ukraine, the ninth. US soyabean exports are expected to fall by 17.8 percent year-on-year in 2012 and corn exports 16.1 percent.

José Graziano da Silva, the Director-General of the UN Food and Agriculture Organization, said in Rome last week that currently high prices don’t amount to a crisis, but that continued vigilance is needed given existing tight markets. The FAO Food Price Index, which measures the prices of internationally-traded commodities, surged by 6 percent in July but it was unchanged last month.

Da Silva and Pascal Lamy, the director-general of the World Trade Organization, both said they were concerned about the possible impact of high food prices on poor countries and on the need for increased social protection, support to local crops production and the strengthening of regional markets.

As Asia Sentinel reported on Nov. 25, 2011, financialization, the practice of investment bankers, hedge fund and money market managers flooding into agricultural futures trading has also made prices extremely volatile as speculative money overwhelmed the quantity of goods for sale.

Speculative funds have poured into the grain markets, leading to a surge in prices,with the net long non-commercial position for corns has rising three-fold between the end of May to August 21, and wheat 94-fold. Between end-May and end-August, prices of corn jumped 44 percent, wheat 38.2 percent and soybeans 31.1 percent as a result of speculative trading, SERI reported.

With grains prices rising, the prices of feed for poultry, beef and pork have also risen, triggering what has become known as agflation. The climbing food prices affect emerging market economies more than developed countries because of significantly higher portion of their household spending going toward food. Price instability caused by rising agricultural prices will keep emerging market economies from implementing stimulus measures, prolonging their economic slowdown.

The rising prices have already led to political unrest in some developing countries, particularly in the Middle East and North African countries. Iran, already beset by an embargo by western powers in an attempt to wean the country off its nuclear weaponization plans, experienced rising poultry feed prices that caused a surge in the prices of chicken, an essential ingredient of the Iranian diet, triggering street protests.

“In short, agflation and political unrest from rising grain prices will bear down on the global economy in the remainder of 2012 and through the first half of 2013,” SERI said. “The emerging economies that have less fiscal firepower will be more vulnerable.Evaluation of the shocks and response capability to agflation and food problems shows that major emerging economies including India, Egypt and Iran will likely face increasing agflation and food problems,” SERI said.

China, one of the world’s biggest importers of corn and soybeans mainly for animal feed, could expect a repeat episode of "pigflation" is expected in the second half of this year, raising China's consumer price growth by as much as 1.5 percentage points in early 2013,SERI predicted.

The report forecasts that agflation, pigflation and oil price rises will heighten global inflationary pressure, with supply setbacks of food and oil further burdening the global economy. With growing inflationary pressure, countries have less room for economic stimulus, which would prolong the economic sluggishness.

The developed economies are under less threat, since a smaller share of their household spending is on food. Also, deflationary pressures are in play in the advanced countries, which will cushion the effect of agflation.