Food shortages and spreading unrest

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by David Malone

It’s not often that one can look into the future and say with some degree of certainty what is going to happen and where.  Thanks to a just released World Bank/IMF report, I think we can say the social and political upheaval that has swept from Tunisia and Egypt to Iran, Sudan and Syria, and which has been, at least in part, fueled by spiralling food costs, is going to intensify and spread to new countries.  We can even, I think, hazard an informed guess as to which countries will be next.

Last week on April 16th the IMF and World Bank held a joint meeting to discuss a study they had commissioned on world food shortages and prices. It makes for grim reading and says quite clearly that the global food price crisis is going to get worse.  At the meeting Robert Zoellick, the World Bank President, said the global food situation was “one shock away from a full-blown crisis”.

According to their report, in just 10 months, since June 2010, 44 million more people are having to live on less than $1.25 per day, which is the poverty line set by the World Bank.  44 million more hungry and frightened people watching food, which only a short time ago they could afford, now spiralling beyond their reach.

It’s not the already abjectly poor who worry the World Bank and our political leaders.  It is those who thought they had struggled up out of hopeless poverty but who, as food prices spiral up, will now have the sickening sensation of feeling themselves and their families slipping back in to hunger and desperation.  They are the tinder for revolution.

In an article I wrote back in Feb called Food, Democracy and Markets, I made the point that we could make sense of which countries had had uprisings simply by looking at which most relied on importing wheat to feed their people.  Wheat was and is the most important food import in Egypt and most of the other countries  in North Africa and the Middle East, and experienced the greatest price rises and volatility over the last year.  Those countries which imported the most wheat per capita were the ones where the people took to the streets in protest.

The simple fact that there are another 44 million people reduced to hunger says the unrest is not over.  But what, I suspect, really alarms Mr Zoellick, however, is the clear prospect that with prices of food continuing to rise their study indicates,

another 10 million people may end up among the ranks of the poverty-stricken if food prices climb by a further 10 percent, and another 34 million would suffer a similar fate if prices of staples were to rise by 30 percent.”

Will the price of food continue to rise?  Food prices, with generous help from speculators, spiked in 2008 and then fell back. The bad news is that since the middle of last year food prices have been rising sharply.  Today they are almost back at the highs of 2008 and the trend is up further.  Prices are already up 63% from a year ago.

The difference from 2008, is that globally we have not replenished world reserves to off-set another spike and we are facing bad harvests in a number of countries.  China is still in the grip of a long and widespread drought.  If the drought does not break China may seek to compete for imports.

At the same time a severe drought

“… has hit corn and plantain production in Kenya, Tanzania and Uganda.  Among all Eastern African countries, Somalia was worst affected by drought where the price of sorghum and maize increased by 80 percent and 20 percent respectively in comparison with January.”

It is easy to see political and social unrest spreading south form North African countries down the East coast of Africa to nations already riven with internal conflict.

In Bangladesh the government headed off unrest by stabilizing prices using its own stocks of rice.  Stocks which is now needs to replenish by doubling what it imports.  But with other countries also needing to increase imports what price will Bangladesh have to pay and will it have the means?

Part of what has spooked Mr Zoellik is that we are approaching a volatile situation where food exporters like Russia are, to stop food price rises at home, banning exports of Wheat till October.  What are countries that depend on imports, like Egypt, and those like Tajikistan and Kyrgyzstan which have already dipped in to state reserves and need to replenish them, to do?  The cost of wheat flour in South American countries is up between 10 and 20% in under a year.

And then there is corn.  Corn consumption is growing far faster than production but a major part of the corn is being turned in to bio-fuel.  Which, the world bank has helped to keep fuel prices from rising as much as they might have done.  This seems perverse to me and made much worse when you add in the fact that oil prices have, nevertheless, shot up and has contributed to the rise in the price of food.  Oil is an input in food production in agro-chemical use, energy inputs in tractors etc and in transport.

Food prices are going to continue to be very volatile.  This will be due to uncertainties in supply at a time when every nation is afraid they might not get as much as they need.  This will push countries to offer a little above the odds in order to get to lock in a price and order now.  This will push prices up, but more importantly will give speculators the perfect opportunity and environment for plying their trade.  Speculation will amplify the price volatility which will make nations even more desperate and so on around.

Any further spread in Africa will also feed back I think, to those countries already in open revolt.  I think Egypt is not settled by a long way.  If, as it appears, wheat is going to remain expensive and perhaps get more so, then the military in Egypt will not, I don’t think, be able to keep the lid on things as they have done in their brief honeymoon period.

And last but not least food prices rises are going to become a factor here in Europe and in America.  Food prices went up 2% just last month in Hungary.  They have been going up in Portugal.  Austerity and food price rises are a volatile mixture.

I think we are getting a little fore taste of the resource wars to come.  Food, water and oil to name but three.