THE BIG PICTURE - Recent massive food commodity price rises, with occasional day trade plunges on the back of market rumours, price chart gazing or analysts' theories – followed by a return to the growth trend - is taken by many as a key proof of the Ponzi scheme new economy. The food commodity sell-off through February 21-23, 2011 is a typical example, explained by market watchers as due to speculation by traders that riots in North Africa and the Middle East could cut government spending and curb food demand from the Arab world, which buys about 33 percent of global shipments.
Price rises will however return like night follows day, and even liberal minded politicians are calling for a clamp down on the commodity speculation driving up oil and food prices, although speculation on equity prices or on credit default swaps linked to bond sales of the PIGS and other super-debt states is still respectable, fair game and politically correct.
These facets of the paper economy, however bizarre or derisory they might be, are however not the big picture. World food is in crisis.
Worldwide stocks of the major food grains, and other foods are in most cases lower than they were in the 1970s - when world population was close to one-half the present 7 billion. The UN FAO repeatedly underlines the acute shortage of arable land for the world's population which is still growing at about 65 million per year. Arable land resources, which are shrinking in net terms, are about 1.4 billion hectares: the average per person is therefore 0.2 hectares. Taking the staple maize, US Agriculture Department (USDA) data issued in February 2011 shows the lowest world inventories since 1974, 37 years back in time. Farmers around the globe are failing to produce enough of this major food staple, and the others, from grains to meat and dairy foods, to meet constantly rising world consumption. This is despite increased planting and food commodity prices that have doubled since early 2010. The outlook is almost sure and certain: food prices are set to go on rising.
For the 3 major food staple grains of wheat, rice and maize, and key livestock feeds and human foods including soybeans and colza (rapeseed), growers from Canada and the USA to Russia, the EU-27, Brazil, Argentina, Australia, India, China and Thailand have boosted annual output by an average of about 15 percent since 2000, but this is outdistanced by demand growth of more than 20 percent in the same period, using USDA data. In all cases it is unlikely there will be significant growth in output, either short-term and perhaps also long-term. For the key livestock feeds including maize and the oilseed colza, due to several factors including their use for producing bio-ethanol and bio-diesel to trim growing oil import costs, and the dependence of all the grains on costly water-intensive irrigation to boost output, plus the impact of climate change and loss of arable land acreages, the outlook for any sustained growth in supply is low. For the grain staples and the key livestock animal feeds led by soybeans, world stockpiles are forecast by agro-industry specialists like R J O'Brien to go on shrinking.
THE FOOD CHAIN - AND FOOD RIOTS
Global inventories of all grains are forecast by the USDA to continue shrinking and to decline at least 13 percent before the next harvest season (from Autumn 2011), making this the first net decline since 2007, when surging food prices sparked more than 60 deadly food price riots in over 40 lower and middle income countries from Haiti and Niger to Egypt and Somalia. As in 2007, increasing demand is again causing food shortages while it powers inflation in developing countries: the collateral damage already includes several Arab dictators unable to cling onto power.
While straight price rises for grains, oilseeds, sugar and non-food soft commodities (such as rubber and cotton) are generating more income for their farmers and producers, downstream food producers dependent on these inputs are strangled by a combination of rising input prices, but slow growing output or selling prices, sometimes capped by consumer-friendly price mechanisms or by often irrational and wasteful food subsidy programmes.
Price rises for the feed grains needed to produce downstream dairy products, meat and fish are moving so fast that producing these key foods for convenience food-oriented urban, and urbanising populations worldwide is now often pure-and-simple uneconomic. In some countries, such as the EU-27 countries in which the EU's Common Agriculture Policy operates, data from the major farming and food organizations paints a dire picture. Regional pork meat farmers in major pork producing regions of France such as Vendee and Brittany, polled by national and regional agro-development and producer associations, such as the SAFER of Vendee, say that up to 15 percent of pork producers in both regions are either bankrupt or likely to go bankrupt by end-2011 unless selling prices rise by at least 25 - 33 percent.
In several African countries, where transport costs for food and feed grains imported from Europe, USA and from South Africa add to fast rising costs, the UN's OSAA (Office of Special Advisor for Africa) reports that a return to serious food shortage, and probable social unrest, is increasingly likely in a string of countries including Niger, Senegal, Mali, Central Africa Republic, Nigeria, Somalia and Ethiopia. Despite generally low yields in much of Africa, the intensity of farming measured by the available land used for food production is high, according to the IUCN, the Millenium Ecosystem Assessment and other specialized entities, making increase of African cropland acreages difficult. Outside the low income countries, other higher income but food import dependent countries such as Egypt, Morocco and Algeria will also remain exposed to the social, political and economic impacts of rising food prices.
CHANGING FOOD HABITS - RISING PRICES
Rising incomes in the Emerging economies led by China and India are intensifying the shortage of world food. As people eat more meat, aquaculture raised fish, and dairy products from crop-fed livestock, demand for the input feed grains will further grow. As much as 10 kilograms of input feed grains can be needed to produce 1 kilogram of downstream meat or fish, butter, cheese and cream. For US agro-industrial operations, an average of about 6.4 kilograms of maize is needed to produce 1 kilogram of beef, and about 3.5 kilograms to get a kilo of pork, according to industry analysts and sector specialist processing firms such as Tyson Corp.
To mid-February 2011, grain futures on the Chicago Board of Trade rallied to the highest since 2008. Maize prices have grown about 95 percent in the past 12 months, soybean prices have risen about 85 percent, while wheat prices have risen about 75 percent. Rice has however not yet started to power ahead, with international traded rice recording only a 12.5 percent price rise in the 12 months since early 2010. This however will change. Major importers led by the world's-largest, Bangladesh, are set to raise their imports. For Bangladesh, plans are for doubling its 2011 rice-import target, to cool domestic prices driven to record highs as consumers and farmers hoard the grain, according to Bangladesh's Directorate General of Food. Indonesia is also considering boosting rice stockpiles, and has removed import duties on wheat, wheat flour, soybeans, and livestock feed in an attempt to slow price rises.
Maize will probably reach or surpass a record US$ 8 per bushel by 2012, and could attain more than US$ 10 a bushel (1 bushel in volume is 35.24 litres) according to many analysts and commodity trading specialists, like Goldman Sachs Group Inc. The so-called "investor community" outlook is for soybeans to continue their recent and record price run, with traded rice quickly making up for lost time, in its own upward price march. Some speculator entities, such as Goldman Sachs, forecast that wheat, maize, rice and soybean prices could rise as much as 15 percent, from their current levels, by May 2011.
YOU DONT HAVE TO EAT ?
We can be sure that consumers can do without smart phones and Internet access, and even trim their oil consumption, if price rises are big enough or consumers become aware of some clear supply limit. But with food things are different. Doing without food or not eating enough - which the UN FAO reports is daily reality for 950 million persons worldwide as of late 2010 - soon has major impacts on their political behaviour, on the economy, public health and society. The outlook for 2011-2012 is therefore particularly sombre because, even if world grain harvests are at record levels for 2 successive years, this will only just restore the global stocks-versus-demand situation to pre-2007 levels. There is no nearterm possibility of restoring the situation which prevailed in the late 1980s and the 1990s when the impact of Green Revolution crop hybrids, more arable land, and cheap oil, generated higher food supply. The food price trend is likely going to remain set on a rising profile for years to come. The impacts, and implications of this for the economy, urban development, political stability and social values are almost open-ended - and will necessarily generate responses and solutions.
The major boost in world food prices has surely triggered more planting but for simple reasons linked to average yields for planted acreages in major producer countries, this is unlikely to generate supply growth of more than about 5 percent. USDA data on farmers' planting intentions tends to indicate US maize and wheat farmers, for example, will raise their 2011-2012 crop acreages by at most 4 to 5 percent. Reasons why the vaunted, economics textbook "price-elastic response" is so weak at the level of net supply and output do not feature speculative hoarding at the producer level, even if this certainly exists in the so-called investor community. The real reasons include continued loss of good arable land, for example due to urbanisation and industrialisation, water shortage and the costs of fuel, irrigation, pesticides and fertilizers, as well as lowered yields on increasingly marginal land that is more exposed to crop losses from drought, erosion, excess rainfall, wind damage and so on - an economic classic at least as old as the hallowed price-elastic response.
GLOBAL HARVESTS AND FOOD TRADE
Compared with 2000-2001 and using International Grains Council and USDA data, the most-recent global grain harvest increased to 2.179 billion metric tons from 1.874 bn metric tons, but this was nonetheless down 2.4 percent from the 2008-2009 harvest. The 2.18 bn ton most-recent harvest can be compared with estimates by UN FAO, the USDA and other sources of world food grains demand in 2010-2011 standing at about 2.25 billion metric tons. This will demand a drawdown of stocks and lead to further falls in global stockpiles, unless the world enjoys at least one, or two successive bumper harvests for all 3 of the major food grains.
The knock-on of rising food prices, which rose about 25 percent in 2010 according to the FAO, has been and will be rapid. In a February 15, 2011 statement, World Bank president Robert Zoellick estimated that an additional 44 million people worldwide have been pushed into extreme poverty because of the rising cost of eating in the 8 months since July 2010. While all the food grains outside rice, and all the oilseeds providing vegetable oils and animal feeds have strongly risen in price, sugar prices have also soared. In a predictable short-term future and intensified by rising oil prices meat, fish, milk and dairy product prices will all rise.
In a major change from “laisser faire” policy typical of neoliberal mindsets, governments are now treating agricultural investment as politically correct, and planning to raise agricultural investment in an attempt to revive crop and food supplies. Until 2007-2008, according to the FAO, development aid to farming provided by the OECD donor countries had been declining each year for over 10 years, presumably on the fond hope that “market forces” would make up the massive shortfall in funds needed. Premier Wen Jiabao told China Central Television on February 10, 2011 that his government will spend 12.9 billion yuan (US$ 1.96 billion) this year to bolster grain production, improve water supply to farming, and fight desertification through tree planting, among other measures. Chinese and Indian buying of major food staples including the oilseeds is further intensifying shortage on world markets. Food import dependent countries that have benefited from higher export revenues on their minerals and metals exports, such as Bolivia, are also considering plans to use some of their record foreign exchange reserves to produce more food, and purchase food on world markets on a “precautionary basis” before prices rise further, increasing their stockpiles of the basic food staples. Increased purchases of traded food commodities inevitably spurs speculation and higher prices.
Overseas buying of agricultural products from the U.S., the largest exporter country for maize, soybeans, wheat and cotton, probably jumped 18 percent by value (but not tonnage) to a record US$ 115.81 billion in 2010, the US government announced in February 2011. China became the largest market for U.S. farm goods for the first time, with the value of shipments increasing 34 percent to US$ 17.5 billion, reflecting China's leading role as food importer – as well as manufactured goods exporter. Rising disposable incomes in India, China and other trade-surplus countries has quickly raised their ability to pay for higher food imports, but at the cost intensifying speculation.
Grain import demand is rising worldwide. Saudi Arabia’s cereal imports may reach a record this year, the FAO said on February 3, 2011 while Algeria, Morocco, Iraq, Bangladesh, Pakistan, Turkey and Lebanon have all issued tenders to buy more wheat or rice in February, as food price inflation further stoked the political unrest that has toppled long-standing dictators in Tunisia and Egypt. Wheat purchases by Algeria, North Africa’s second-largest importer (after Egypt), climbed to 1.75 million metric tons in January alone, according to commodity analysts at Goldman Sachs.
As noted previously, food import dependence is intensified by changing food habits. China, the world’s largest pork meat consumer, boosted demand for pork by 30 percent since 2000, and beef demand by about 10 percent, while its population only increased 5.3 percent in the same period, using UN data. Similar import growth trends apply in other Emerging economies, especially for feed grains used in poultry and fish rearing, driven by a shift in livestock, dairy and poultry production from small, family farms depending on pastures and local-produced, local-sourced inputs to bigger, more energy and chemicals-intensive agro-industrial production, with animals fed on maize and soybean meal. In turn this generates nearly total dependence on food trade, transport, and industrial inputs like pesticides, fertilizers and antiobiotics.
RISING INPUT COSTS
Suppliers of industrial goods, chemicals like fertilizers, and services for world agro-industrial food production have enjoyed a rapid growth in their turnover, with a large upward impact on their own input prices. Since January 2011, industry analysts such as food sector specialists at JPMorgan Chase in New York have continually raised their price targets for the share value of fertilizer makers such as Agrium Inc. and Potash Corp. of Canada, and farm-equipment makers like Deere & Co., Claas Corp. and Agco Corp. of USA, YTO of China or Mahindra & Mahindra of India. World agricultural equipment makers report that key inputs, such as metals, other raw materials and energy for manufacturing farm machines are often suffering price rises of above 15 percent annual.
The trend to further intensification of world agriculture, needing more and larger machines, chemicals and bioscience inputs such as GM plant hybrids is dictated by two main factors. These are declining arable land availability and declining food stockpiles. As food and agriculture study organizations note, rebuilding the “stockpile cushion” will be impossible in only 1 or 2 years. In major developed country food producers countries, including the USA and European net food exporters such as France, loss of arable land, water and chemicals costs, and other factors are tending to reduce total productive capacity, year after year. Analysts including USDA researchers and other specialists conclude that by about 2017, the USA may become a net food importer in value terms. For the analyst Dan Basse of AgResource Co, the US is in a context where net losses of land and increasing input costs since 1979 result in what he calls an acreage wall: “We have reached an acreage wall where the U.S. can no longer be the world’s pillar of exports for maize, soybeans and wheat.”
HEADING OFF FURTHER CRISES
Due to the size and output volume of the world food industry, changes tend to be slow moving and costly in terms of capital spending, reinforcing the outlook for several more years of high food prices. This outlook is backed by rising input prices for increasingly agro-industrial production systems, and long-term climate changes affecting global producer regions. Quick fixes, such as GM hybrid plants now used in approximately 60 percent of world soybeans production, for example, are themselves input intensive and unlikely to provide any “silver bullet” despite claims to the contrary, according to industry specialists and several major food conglomerates such as Nestle Co.
Solutions will therefore tend to be slow, incremental and ground-up. The return of traditional-style food production as niche-oriented biological and wholefoods production is already established in some higher income countries, but the main potentials for producing more food with less inputs will focus the sustainable cropping of drylands and formerly-marginal land acreages, where water conservation will be the main goal. World Bank data indicates that about 78 percent of world water needs are for agriculture, and raising water supply for agriculture is both difficult and costly. Due to high biomass and ecological productivity in wetlands and semi-saline coastal and estuarine environments, these generally neglected but high potential “new lands” are another key target for agricultural research and development, along with drylands farming and energy saving techniques such as no-till. Food waste, despite the claims of fastfood defenders, is radically increased by urban food habits and supply structures where recovery and recycling of food wastes is difficult and transport-intensive.
Heavy capital investment in existing systems and infrastructures, and rising food prices make it difficult to break out into new solutions and alternatives. Nestle CEO Peter Brabeck-Letmathe in an October 2010 statement to shareholders explained that high food prices increase the pressure to improve efficiency, "But when you start only after prices have gone up, you are too late”. In general, as the food chain extends over distances able to span the globe, waste tends to rise. Local food production for local consumption is the solution but existing commercial practices, consumer habits and expectations are major obstacles to change in the absence of government intervention and legislation, which itself is only likely under crisis conditions.
The political importance of food security – as opposed to energy security – is surely growing but is still far behind economic growth goals and the search for technology and science quick-fixes that could or might radically raise food productivity from existing systems and infrastructures. As with the delayed response to rising food prices to invest in new and alternate farming methods, the political impact of current food supply and commerce inevitably includes food riots in the most exposed, lower and middle income countries. Despite the long history of failure, the so-called strategy of laisser faire still commands massive and obligatory spending of government revenues on subsidy programmes, stockpiling, and attempts to raise agricultural productivity in many countries, instead of investing in innovation and alternatives.
Sustainable food production and affordable food will certainly become key political goals, following the Arab revolt of 2011. Measures and programmes for achieving these goals will quickly grow, not only in an attempt to maintain political stability, but also due to the long-term trend of declining food inventories and increasing difficulties in raising production from existing croplands using present commercially profitable, conventional techniques. Likely one of the major coming food sustainability and security measures will be urban food supply restructuring, extension and development within new and necessarily radically different national development policies and programmes. Such action is already under study by many research, science and technology and academic institutions, but it is unlikely there will be major movement before the current crisis deepens enough to command the full attention it deserves.
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