Global Trends by Martin Khor

Monday 13 August 2012                

Fears of a new global food crisis

Drought in the United States and weather events elsewhere have led to sharp price increases in some foods and raised fears of a new global food crisis


A new world food crisis is being predicted because weather conditions especially in the United States has damaged current food crops, especially corn and soya beans.

The world price index for food commodities jumped an alarming 6% in July (compared to June) while cereal prices jumped an average of 17%, according to the UN Food and Agriculture Organisation.

There is greater likelihood a repeat later this year or in 2013 of the food price crisis of 2008 that led to riots and demonstrations in over 30 countries. 

Another concern is that the warnings by scientists that climate change can lead to a decline in food production are already becoming a reality. 

The extreme weather events being experienced, such as the heat-wave and drought in the US and the floods in China, the Philippines and Pakistan, have been linked to climate change. 

And some of these weather events are the driving force behind the spike in prices of foods.

The price of corn in the US is expected to go up by up to half as the worst drought in 60 years has severely damaged crops in many parts of the country.

Last Friday the US Department of Agriculture lowered its estimates of this year’s corn output by 2.2 billion bushels to 10.8 billion bushels.  It also estimated that the domestic corn price would be US$7.50 to $8.90 per bushel after the harvest.  This compares with the June price of about $6.

Corn is a vital crop because it is used not only as food itself, but also as the main part of animal feed and an ingredient of many foodstuffs.  The prices of poultry, red meat, milk and many processed foods, are predicted to go up.

Another crop affected by the US drought is soya beans, and prices have already shot up.

The UN’s Food and Agriculture Organisation reported last Friday that its index of world food prices overall had gone up by 6% in July as compared to June.  This was mainly due to a 17% jump in overall cereal prices as well as a 12% jump in the sugar price.

The severe deterioration of maize crop prospects in the US, following drought conditions and excessive heat during critical stages of the crop development, pushed up corn prices by almost 23% in July, according to the FAO report.

International wheat price quotations also surged by 19% amid worsening of production prospects in the Russian Federation and expectations of more demand for wheat as animal feed because of the fall in corn supplies.

The FAO also reported that the price of soya beans had soared to record levels.

Fortunately, the price of rice has been stable so far.  The supply and stocks of rice have been abundant, but the future direction of rice prices remains uncertain, warns the FAO.

The FAO’s forecast of global rice production for 2012 has been lowered by 7.8 million tonnes, mainly because of the reduced rains in India. Korea, Nepal, and Cambodia will also have reduced rice output, while Thailand is expected to sharply reduce its rice exports.  But output is expected to rise in other countries such as China, Indonesia, Australia.

The bleak or uncertain prospects for supplies and prices of some foods has revived the controversy of the increasing use of crops for biofuels instead of food.

The new head of the FAO last week called on the US to change its policy by temporarily lifting its present mandate that 40% of its corn is used for making ethanol.

An immediate suspension of this ethanol mandate would allow more of the crop to be channelled towards food and feed uses, said Jose Graziano da Silva.

Many organisations have been critical of the diversion of land to produce crops to be used for bio-fuels, diverting from the use of land for food.  This conflict in alternative uses of land is bound to be more acute when food supplies are reduced due to weather conditions and climate change, while the demand for food increases.

The higher prices of imported foods and the uncertainties of supplies will also catalyse food-importing countries to again consider greater food self-sufficiency as a priority.

Many countries that had produced their own food and were even net exporters had experienced an agricultural decline as their governments withdrew their support for farmers and the food sector as a condition for obtaining structural adjustment loans from the World Bank and IMF.

They also had to reduce their agricultural tariffs to very low levels, thus allowing a surge of cheap and often subsidised imports, which damaged local production.

The looming crisis in food prices and supplies is likely to prompt food dependent countries to once again reconsider their definition of food security and give higher priority to local production.