Food Crisis Fuelling Global Instability

Food shortages have gotten an uptick in press coverage in the last two days due to a G7 pronouncement that was curiously interpreted differently by the New York Times and the Financial Times. First, the NY Times:

The world’s economic ministers declared on Sunday that shortages and skyrocketing prices for food posed a potentially greater threat to economic and political stability than the turmoil in capital markets…

“Throughout the weekend we have heard again and again from ministers in developing countries and emerging economies that this is a priority issue,” said Robert B. Zoellick, president of the World Bank. “We have to put our money where our mouth is now, so that we can put food into hungry mouths. It is as stark as that.”….

Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said the food crisis posed questions about the survivability of democracy and political regimes.

“As we know in the past, sometimes those questions lead to war,” he said. “We now need to devote 100 percent of our time to these questions.”

By contrast, the Financial Times saw the emphasis a bit differently:

The high-level economic meetings ended up putting as much weight on the global food crisis as the credit crisis. Palaniappan Chidambaram, India’s finance minister, told his colleagues rising food prices were causing severe problems.

Nevertheless, the fact that a finance-focused meeting gave so much attention to food is such a large departure as to underscore how serious the problem is.

While the New York Times has a good analysis today, “Fuel Choices, Food Crises and Finger-Pointing,” on the increasingly contentious biofuel programs, I found “Our global warming rage lets global hunger grow,” by Ambrose Evans-Pritchard at the Telegraph the more informative treatment. In part, it’s because he marshals some statistics that I haven’t seen elsewhere, such as how dependent some countries are on grain imports. In this case, I also found his tendency to sensationalism useful. People are starving, More will starve if the first world and rapidly developing third world countries don’t curtail their consumption of animal and fish protein and get off the biofuel kick.

One can take the Scrooge/Malhtusian view that there are always poor people who lead lives of desperation and want and do the equivalent of turning to another channel. But this crisis is not going away; it’s becoming ever more acute. And the reason that the rich and powerful nations have taken interest isn’t simply competition for scarce food resources (although that is an issue too). The bigger danger is refusal to export by the haves, and wars and mass emigrations by the have-nots. The Evans-Pritchard piece give a more visceral sense of what’s at stake.

From the Telegraph:

We drive, they starve. The mass diversion of the North American grain harvest into ethanol plants for fuel is reaching its political and moral limits.

“The reality is that people are dying already,” said Jacques Diouf, of the UN’s Food and Agriculture Organization (FAO). “Naturally people won’t be sitting dying of starvation, they will react,” he said.

The UN says it takes 232kg of corn to fill a 50-litre car tank with ethanol. That is enough to feed a child for a year. Last week, the UN predicted “massacres” unless the biofuel policy is halted.

We are all part of this drama whether we fill up with petrol or ethanol. The substitution effect across global markets makes the two morally identical.

Mr Diouf says world grain stocks have fallen to a quarter-century low of 5m tonnes, rations for eight to 12 weeks. America – the world’s food superpower – will divert 18pc of its grain output for ethanol this year, chiefly to break dependency on oil imports. It has a 45pc biofuel target for corn by 2015.

Argentina, Canada, and Eastern Europe are joining the race.

The EU has targeted a 5.75pc biofuel share by 2010, though that may change. Europe’s farm ministers are to debate a measure this week ensuring “absolute priority” for food output.

“The world food situation is very serious: we have seen riots in Egypt, Cameroon, Haiti and Burkina Faso,” said Mr Diouf. “There is a risk that this unrest will spread in countries where 50pc to 60pc of income goes to food,” he said.

Haiti’s government fell over the weekend following rice and bean riots. Five died.

The global food bill has risen 57pc in the last year. Soaring freight rates make it worse. The cost of food “on the table” has jumped by 74pc in poor countries that rely on imports, according to the FAO.

Roughly 100m people are tipping over the survival line. The import ratio for grains is: Eritrea (88pc), Sierra Leone (85pc), Niger (81pc), Liberia (75pc), Botswana (72pc), Haiti (67pc), and Bangladesh (65pc).

This Malthusian crunch has been building for a long time. We are adding 73m mouths a year. The global population will grow from 6.5bn to 9.5bn before peaking near mid-century.

Asia’s bourgeoisie is switching to an animal-based diet. If they follow the Japanese, protein-intake will rise by nine times. It takes 8.3 grams of corn feed to produce a 1g of beef, or 3.1g for pork.

China’s meat demand has risen to 50kg per capita from 20kg in 1980, but this has been gradual. The FAO insists that this dietary shift is “not the cause of the sudden food price spike that began in 2005”.

Hedge funds played their part in the violent rise in spot prices early this year. To that extent they can be held responsible for the death of African and Asian children. Tougher margin rules on the commodity exchanges might have stopped the racket. Capitalism must police itself, or be policed.

Even so, the funds closed their killer “long” trades in early March, causing a brief 20pc mini-crash in grains. The speculators are now neutral on the COMEX casino in New York.

What about the California state retirement fund (Calpers), the Norwegian Petroleum fund, the Dutch pension giants, et al, pushing a wall of money into the $200bn commodity index funds?

They have undoubtedly bid up the futures contracts, but the FAO says this has no durable effect on food prices. These index funds never take delivery of grains. All they do is distort the shape of the maturities curve years ahead, allowing farmers to lock in eye-watering prices. That should cause more planting.

Is there any more land? Yes, in Russia, Ukraine, and Kazakhstan, where acreage planted has fallen 12pc since Soviet days. Existing grain yields are 2.4 tonnes per hectare in Ukraine, 1.8 in Russia, and 1.11 in Kazakhstan, com-pared with 6.39 in the US. Investment would do wonders here. But the structure is chaotic.

Brazil has the world’s biggest reserves of “potential arable land” with 483m hectares (it currently cultivates 67m), and Colombia has 62m – both offering biannual harvests.

The catch is obvious. “The idea that you cut down rainforest to actually grow biofuels seems profoundly stupid,” said Professor John Beddington, Britain’s chief scientific adviser.

Goldman Sachs says the cost of ethanol from corn is $81 a barrel (oil equivalent), with wheat at $145 and soybeans $232. It is built on subsidy.

New technology may open the way for the use of non-edible grain stalks to make ethanol, but for now the only biofuel crop that genuinely pays its way is sugar cane ($35). Sugar is carbohydrate: ideal for fuel. Grains contain proteins made of nitrogen: useless for fuel, but vital for people.

Whatever the arguments, politics is intruding. Food export controls have been imposed by Russia, China, India, Vietnam, Argentina, and Serbia. We are disturbingly close to a chain reaction that could shatter our assumptions about food security.

The Philippines – a country with ample foreign reserves of $36bn (Britain has $27bn) – last week had to enlist its embassies to hunt for grain supplies after China withheld shipments. Washington stepped in, pledging “absolutely” to cover Philippine grain needs. A new Cold War is taking shape, around energy and food.

The world intelligentsia has been asleep at the wheel. While we rage over global warming, global hunger has swept in under the radar screen.

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12 comments

  1. yoyomo

    If you ascribe any credibility to the conspiricy theories of Alex Jones then this is nothing more than part of the plan to depopulate the globe to bring population into line with available resources. At minimum it brings in more forex with which to pay for oil imports.

  2. Anonymous

    People are starving, More will starve if the first world and rapidly developing third world countries don’t curtail their consumption of animal and fish protein and get off the biofuel kick.

    Nowhere do I see any mention of birth control! If there isn’t enough food to feed your population, then you need to create less population and live within your available food resources.

    Starvation is nature’s way of telling you that your population has outgrown nature’s ability to sustain it.

  3. Anonymous

    Pritchard:
    “Goldman Sachs says the cost of ethanol from corn is $81 a barrel (oil equivalent), with wheat at $145 and soybeans $232. It is built on subsidy.”

    You like to quote Prichard. Pray tell, what does this little jewel mean?

    Wheat at $145 a barrel? The barrel is apparently built on a subsidy. Hope we don’t have subsidence!

    Last I heard we don’t make ethanol from soybeans.

    Pritchard is an hysterical fearmonger writing to fetch maximum effect with least fact.

    And his writing style is right up there with Pirsig. Now there’s a combination.

    Zen and the Art of Food Hysteria.

  4. Francois

    “Last I heard we don’t make ethanol from soybeans.”

    You heard wrong; turns out we do. Visit NPR.org and go to “All things considered” edition of the 10th of April.

  5. Walt

    Food aid to countries that immediately institute draconian population control policies, nothing for anyone else?

    I mean, how long does anyone think we can keep doing this? There need to be 50-90% fewer people on Earth if we all want to live developed world lifestyles. It’s that simple.

    I mean, Malthus has to be right eventually, even if we make it to a Dyson sphere level of technology first. Exponential population growth is a bad, bad thing.

    -Walt

  6. Lord

    If we are willing to pay ever increasing amounts for oil, this will be the result, subsidies or not. It is inevitable.

  7. plschwarz

    If I figure correctly, with shelled corn at 56 lbs/bushel Converting kg to bushels,it takes about 9 corn bushels per kid per year

    Now the USDA projects
    the U.S. ethanol sector will need 4 billion bushels per year by 2011—roughly twice as much as it consumed in 2006.

    So in 2006 ethanol fuel takes a years worth food away from 200,000,000 kids and 400,000,000 in 2011.
    Those of you in NY think the lotto ads thats two hundred million kids, thats two hundred million kids

  8. Yves Smith

    Agreed completely that no one is yet willing to discuss the real issue, which is too many people, all of whom want first world lifestyles. This problem was evident back to the unfortunately-discredited Club of Rome. Biologist E.O. Wilson has been talking about his for at least a decade and a half, when he ascertained that humans were consuming 20 to 40% of the planet’s food energy. That wasn’t sustainable even then, and it’s vastly worse now.

    Now if the first world were a a good deal more environment-sensitive (more people living in apartments in cities which allows for lower heating costs and greater use of public transport; a willingness to convert to diets that were less meat intensive), we could accommodate more people living at this level, but the basic conundrum is still here.

    And it is fundamental. We have the religious element, from the Catholic that intervening in reproduction is sinful, to the more generalized Judeo-Christian “be fruitful and multiply” edict. Many ethnicities and countries view any attempts to restrict childbearing as a form of genocide.

    And we have the practical elements. Most societies are set up presupposing growth. Look at the much lamented demongraphic crisis hitting Japan and European countries with low birth rates, such as Italy. The obvious expedient is to encourage the able-bodied middle aged and elderly to continue working, yet there is considerable bias against that (I know of many very talented people 45 and older who simply can’t find reasonable work, and that was in a supposedly robust economy. The predisposition is to have someone young and supposedly hungry, even though the new 20-somethings actually want tons of praise and fast promotions. Prejudice dies hard).

    And we do not have good alternatives for care of the elderly ex families. Even if one had the means to afford a high standard of care, there is no assurance you will get it unless someone is watching. In a hospital, having your own private duty nurse can keep you from being neglected, but otherwise, an elderly person with no/few visitors is almost guaranteed to get less attentive care than one with a lot of traffic and family members pestering the doctors. It’s the squeaking wheel phenomenon, and it operates in retirement homes too.

  9. Jackson

    Excellent Yves! I only wish I could pen my thoughts as well as you are able to do.

    Animals breed unrestricted but ultimately, they are always constrained by the food resources available to them. If they over-breed, those that cannot find food will die young. There will also be more sickness. Nature gives and nature takes.

    Humans also breed unrestricted in most of the world (excepting China perhaps, which I believe still has their one child rule). If humans keep reproducing unrestricted, at some point we are going to run out of resources to feed an ever increasing population.

    Humans are “supposed” to be smarter than most other animals. So why do we breed without control in many instances, particularly in 3rd world countries which are already constantly short of food and adequate medical care? There are many reasons, some of which as Yves notes.

    One aspect that I have never seen discussed is that children have no choice in their birth, whether they are blessed to being born into a wealthily family that can provide them with adequate food, care, education and opportunity or be constrained to live a hardscrabble life, forever hoping to pull themselves out of a fate of poverty, hunger and/or low opportunity that they were born into without consent. I think that parents should have to demonstrate that they can provide fully for a child before they have one or more.

    Sending food across the world to attempt to alleviate starvation doesn’t solve the problem. It contradicts Nature and encourages ever more breeding.

    btw: here is a link on estimates for the total number of humans that have lived and died since the beginning. The number is around 106 billion. Of course the number is a gross approximation.
    http://answers.google.com/answers/threadview?id=764806

  10. Anonymous

    Bio fuels started out with some idiot using vegetable oil from Mc Donalds to run his truck. The next thing you know its the policy of the United States to divert food for fuel. War, oil and food shortages. Please someone explain the power of the invisible hand.

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