Credit Crunch May Produce Another Food Crisis in 2009

Restricted credit and access to foreign exchange may lead farmers to cut production, worsening agricultural price pressures. From the Financial Times:

The world might face a repeat of this year’s food crisis as the credit crunch encroaches on the agricultural market, leading farmers to cut their planting because of falling prices and lack of finance to buy fertilisers, the United Nations warned on Thursday.

“Riots and instability could again capture the headlines,” the Food and Agriculture Organisation said.

The warning was made despite a fall in the price of most agricultural commodities as farmers harvest bumper crops…

“Under the current gloomy prospects for agricultural prices, high input costs and more difficult access to credit, farmers may cut their plantings, which might again result in a tightening of world food supplies,” the FAO said in the report….

Concepción Calpe, a senior economist at the FAO in Rome, said a price surge might take place in the 2009-10 harvesting season, “unleashing even more severe food crises than those experienced recently”.

Lower production and higher prices next year could add to developing countries’ problems in obtaining sufficient credit and foreign exchange to buy agricultural commodities. “Export finance is becoming more difficult to obtain, with banks tightening up the conditions for issuance of letters of credit,” the FAO said.

Thailand and Iran agreed last month to barter rice for oil, the clearest example yet of how the financial crisis, high fuel price and scarcity of food are reshaping global trade.

In spite of the continuing fall in food prices, the world’s food imports’ bill is set to surge above $1,000bn (€785bn, £633bn) for the first time ever, up 23 per cent from last year and 64 per cent higher than in 2006, the FAO said.

Developing countries will spend $343bn this year on food imports, up a record 35 per cent from last year’s $254bn. Some poor countries, the organisation said, were curtailing food imports in an effort to lower their bills.

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  1. Anonymous

    Two weeks ago I started reading this blog and now wonder at its validity. Has every one posting here just gone delusional to the cause and effect of the currant market position? Just for giggles start with Citibank and credit cards and their move to Idaho in the late 70s for a better a market environment. Now look at their contracts in market place evolution or the 2% solution it worked! The gloves were off in regards to bank/lender customer relationship as the lender could do almost any thing to the customer. Well if it worked for the credit card world why not the rest IE home loans and beyond. The trust is gone for good now and everyone will have to pay the tab. I’ve worked at the international level for 35 years and have seen the slide in into this morass coming for a long time now. Remember slick types as we are only 200 years plus the beginnings of the industrial revolution and we are still just kids at this game. Stability is all ways preferable to unchecked expansion as you have a ground game you can work with and not have to rely on a Crystal ball. Hell in my field quotes are a joke as the price is always driven down at the cost of quality only to haggle the price of the job a second time to meet standards. What a mind job to contend with building nuclear power plants BTW coming to your town soon! KISS Keep it simple stupid! Do we really need to create a system of wealth/economy base on the uniformed suckers?

  2. Anonymous

    To anon @6:33 a.m.
    ————What?! You should *wonder at* your spelling and writing skills first. Really. That might help a great deal later on to comprehend “validity” of this blog and not pollute it with your inadequate in so many ways posts.

  3. Anonymous

    To anon 8:16
    Cut a person some slack for Pete sake. Shouldn’t this person be able to express an opinion the same as you even though he/she may not be the greatest speller in the world? Me thinks ye protest to much!!!!!

  4. Anonymous

    This blog is particularly valuable because there are relatively few comments and most of them are of high quality and great depth. Selfishly, I would like to see it staying this way, rather than becoming diluted and potentially overwhelmed in the future by a growing collection of rants.

  5. Bas

    Could someone please explain why years of rising food prices, in conjunction with the ethanol-hype, didn’t induce producers to greatly expand their food production? In that case, a contracting world economy would (with a pork cycle lag) mean overcapacity and falling, not rising food prices, right?

  6. Anonymous

    @ Anon 8:38. If the first poster did not use words such as “delusional” and “slick types,” perhaps he or she would be less ripe for ridicule. Just a reminder here to those who desperately wish that things were simple: things are not simple. The innate delusion of humanity stems from its members’ use of discriminatory filters to fool themselves that a world complex beyond their wildest imagination is actually simple. Do you even understand that we don’t know what happens at the level of the very small? Have you even spent 30 minutes with the truly mind-blowing concept that is being promoted as string theory? Look at this statement, “Stability is all ways preferable to unchecked expansion..” Really? Always? To whom? It would seem that stability is mostly preferable to those who desire to maintain their current level of privileges. The rest? I’m not so sure. I would be very surprised to learn that the desperately poor are in favor of “stability.”

    I have picked at this idea in many comments over the last few months. The arrogance, on all sides, simply overwhelms me at times. You (and I) know far less than we think we do. Please try to keep this in mind before posting a comment. I am not saying that we should cease trying to make things better. Au contraire. I just think we should lose the arrogance, and develop some respect for competing ideas, and maybe consider briefly (just before posting) that we may not indeed be the ultimate expert on the issue at hand.

  7. SlimCarlos

    @ Bas:

    >> Could someone please explain why years of rising food prices, in conjunction with the ethanol-hype, didn't induce producers to greatly expand their food production?

    Actually, you've had years of falling food prices as expressed in real terms, at least at the wholesale level. Look at a long term chart of wheat here: — the nominal price hasn’t changed in 35 years!!!!

    Granted, productivity has increased greatly over this time; your yields have improved due to better use of crop inputs and more efficient harvesting techniques.

    Still, farming has been a terrible business for so long now there has been little incentive to increase capacity.

    What must grate farmers is that finally when prices do catch up with reality, as they did last year, folks gripe that it is they who are being screwed. Gimme a break!! I mean, to those who would complain I suggest that they go try farming for a living.

    Now the credit crunch is screwing things up again, as if distorted capital flows over the last 30 years weren’t enough. Farmers can’t get credit to plant fergodsake. This in the context of near empty bins.

    Question for the deflationists out there: How is the global economy supposed to pay off this debt on an empty stomach? With food riots in the village square?

    Devalution. More. Faster. Please.

  8. doc holiday

    Food Related New York thoughts:

    Citing studies from JP Morgan and Goldman Sachs, Azrack said the actual loss rate from CMBS markets could be as high as 7% or 8%. “Not just default or foreclosure, but actual loss rates, which would be extraordinary,” he said.

    “Given the number of layoffs that are going to happen once the year end comes around, along with lower pay and bonuses, a lot of businesses are going to contract,” said Patterson.

    Reilly predicted that around 100,000 people could find themselves unemployed in New York City in 2009. He said that could then lead to another 200,000 to 300,000 unemployed as other businesses dependent on the financial industry begin to suffer.

    Reilly also said that office vacancy rates in New York City could rise to around 12% over the next few years as new space comes online and that rents will decline. He predicted the worst time will be late 2009 into late 2010 but that a rebound might begin sometime in 2011.…k/175059- 1.html

  9. Frank

    Our problems are solvable, but first we must know what they really are. Consensus building is difficult when so many have embraced myth based ideology as reality. There are people working to help humans improve perception so that we may begin to consider the fundamental problems we face. I would maintain the current financial crisis and coming economic meltdown are merely symptoms of even more pervasive problems. Either humans come together to face them, or Nature takes care of it for us, and that will not be pleasant. If we resort to war, those of the 21st century will make WWI & WWII look like child's play, I fear. Perhaps we should all take this opportunity to find common ground, and visual a positive but realistic vision of the future, and seek the strength, wisdom, courage, and perseverance to make our vision a reality, such that we leave a reasonable Earth to the children of future generations. Best wishes! Frank from EntropyPawsed

  10. Anonymous

    After your stinging rebuke of my poorly constructed post I feel the need to inform you of a few things. Had a bad fall back in March and the diagnosis is DAI/defuse axinol injury, sorry to have dragged down the standards. A few months ago I would have not attempted to post here as I’m just coming out of the woods. So if you can cut me some slack for a bit it would be appreciated.

    String theory is a favorite of mine. To think one man combined the 5 theory’s into one as they were really one in the same is brilliant. Hope the new super collide can capture the moment a graviton escapes this dimension into another so we can prove the existence of another dimension. The prospect that the energy in our dimension comes from the interaction at the point where strings contact the membrane separating our dimension from another is unbelievably exciting.

    With the content of my post I was only trying to make the point that we built an overly complicated financial structure that is too top heavy and now everyone is chasing their tails to find a fix, if it can be fixed.

    On the question of food my grandfather was paid ed thousands a year to not sow seed on a 200 acre farm for years. This is funny as he never intended too. Now people wonder what is wrong with food production. With that said some of the best farming land in the country is used for housing and not food production. In fact the world has now use up all available photon strike area out there for farming.

  11. Asset Allocation Insights

    So, what of the deflation argument if investors can’t get loans to build capacity, as the article about farmers suggests? This question extends far beyond the ag sector. See Yves’ other posts about China toy factor shutdowns, real estate, etc etc. It’s hard to see how deflation can take hold when capacity is shutting so fast (even though demand is falling too, and even though “capacity building” and “demand” are so intertwined).

  12. Richard Kline

    It isn’t widely perceived outside of the industries involved that agriculture in ‘developed’ countries is highly capital-intensive and intimately wed to the financial markets, but so it is. A financial system freeze-up by definition implies an agricultural system freeze out. This was part of what subsidies were designed to buffer; but subsidies were a Bad Thing do the deregulaitonists, a ‘socialist practice.’ So we have less by way of buffers now.

    Lah-de-day, one more thing for the Lean Fresh Prince to hire Wall Street to solve, or something. Let’s hope that this one rises to the top of the yellow pads for the new crew.

  13. Michael MacLeod

    I have this pet theory that given enough time, all discussions on the internet eventually are reduced to conflicts over spelling, punctuation and grammar.

    Like it or not, when our words represent us, we are judged by the “appearance” of those words. Sure, on the net you’re free to belch prose that’s unencumbered by style, just like you’re free to go to church in running shorts, a dirty t-shirt and flip-flops. Doesn’t mean you should.

    Oh, and by the way, I liked this post. :-)

Comments are closed.