** Naomi Spencer: Food Shortages, Price Spikes Threaten World Population

2007-12-22

Richard Moore

Original source URL:
http://www.countercurrents.org/spencer221207.htm

Severe Food Shortages, Price Spikes Threaten World Population
By Naomi Spencer
22 December, 2007
WSWS.org

Worldwide food prices have risen sharply and supplies have dropped this year, 
according to the latest food outlook of the United Nations Food and Agriculture 
Organization. The agency warned December 17 that the changes represent an 
³unforeseen and unprecedented² shift in the global food system, threatening 
billions with hunger and decreased access to food.

The FAO¹s food price index rose by 40 percent this year, on top of the already 
high 9 percent increase the year before, and the poorest countries spent 25 
percent more this year on imported food. The prices for staple crops, including 
wheat, rice, corn and soybeans, all rose drastically in 2007, pushing up prices 
for grain-fed meat, eggs and dairy products and spurring inflation throughout 
the consumer food market.

Driving these increases are a complex range of developments, including rapid 
urbanization of populations and growing demand for food stuffs in key developing
countries such as China and India, speculation in the commodities markets, 
increased diversion of feedstock crops into the production of biofuels, and 
extreme weather conditions and other natural disasters associated with climate 
change.

Because of the long-term and compounding nature of all of these factors, the 
problems of rising prices and decreasing supplies in the food system are not 
temporary or one-time occurrences, and cannot be understood as cyclical 
fluctuations in supply and demand.

The world reserves of cereals are dwindling. In the past year, wheat stores 
declined 11 percent. The FAO notes that this is the lowest level since the UN 
began keeping records in 1980, while the US Department of Agriculture (USDA) has
reported that world wheat stocks may have fallen to 47-year lows. By FAO 
figures, the falloff in wheat stores equals about 12 weeks worth of global 
consumption.

The USDA has cautioned that wheat exporters in the US have already sold more 
than 90 percent of what the department had expected to be exported during the 
fiscal year ending June 2008. This has dire consequences for the world¹s poor, 
whose diets consist largely of cereal grains imported from the United States and
other major producers.

More than 850 million people around the world suffer from chronic hunger and 
other associated miseries of extreme poverty. According to the FAO, 37 
countries‹20 in Africa, 9 in Asia, 6 in Latin America, and 2 in Eastern 
Europe‹currently face exceptional shortfalls in food production and supplies.

Those most affected live in countries dependent on imports. The poorest people, 
whose diets consist heavily of cereal grains, are most vulnerable. Already the 
poor spend the majority of their income on staple foods‹up to 80 percent in some
regions, according to the FAO. Ever-rising prices will lead to a distinct 
deterioration in the diets of these sections of the population.

The food crisis is intensifying social discontent and raising the likelihood of 
social upheavals. The FAO notes that political unrest ³directly linked to food 
markets² has developed in Morocco, Uzbekistan, Yemen, Guinea, Mauritania and 
Senegal. In the past year, cereal prices have triggered riots in several other 
countries, including Mexico, where tortilla prices were pushed up 60 percent. In
Italy, the rising cost of pasta prompted nationwide protests. Unrest in China 
has also been linked to cooking oil shortages.

In addition to the cost of imports, war and civil strife, multiple years of 
drought and other disasters, and the impact of HIV/AIDS have crippled countries¹
food supply mechanisms.

Iraq and Afghanistan both suffer severe shortfalls because of the US invasion 
and ongoing occupation. North African countries are hard hit by the soaring 
wheat prices because many staple foods require imported wheat.

Countries of the former Soviet Union are facing wheat shortages. People there 
spend upwards of 70 percent of their incomes on food; the price of bread in 
Kyrgyzstan has risen by 50 percent this year and the government released 
emergency reserves of wheat in the poorest areas to temporarily ease the crisis.

In Bangladesh, food prices have spiraled up 11 percent every month since July; 
rice prices have risen by nearly 50 percent in the past year.

Central American countries saw a 50 percent increase in the price of that 
region¹s staple grain, corn. Several countries in South America have also been 
impacted by the high international wheat prices, compelling national governments
to dispense with import taxes. The government in Bolivia, for example, has 
dispatched the military to operate industrial-scale bread bakeries.

All national governments are keenly aware of the possibility of civil unrest in 
the event of severe food shortages or famine, and many have taken minimal steps 
to ease the crisis in the short term, such as reducing import tariffs and 
erecting export restrictions. On December 20, China did away with food export 
rebates in an effort to stave off domestic shortfalls. Russia, Kazakhstan, and 
Argentina have also implemented export controls.

But such policies cannot adequately cope with the crisis in the food system 
because they do not address the causes, only the immediate symptoms. Behind the 
inflation are the complex inter-linkages of global markets and the fundamental 
incompatibility of the capitalist system with the needs of billions of poor and 
working people.

The volatility of the financial markets, driven by speculation and trading in 
equity and debt, intersects with the futures and options markets that have a 
direct bearing on agricultural commodity markets. As the housing market in the 
United States collapsed, compounding problems in the credit market and 
threatening recession, speculation shifted to the commodities markets, 
exacerbating inflation in basic goods and materials. The international food 
market is particularly prone to volatility because current prices are greatly 
influenced by speculation over future commodity prices. This speculation can 
then trigger more volatility, encouraging more speculation.

Future grain prices are a striking example of this disastrous cycle. On December
17, speculation on wheat and rice for delivery in March 2008 forced prices to 
historic highs on the Chicago Board of Trade. Wheat jumped to more than $10 a 
bushel on projections of worsening shortages and inflation. This level is double
the $5-a-bushel price of wheat at the beginning of 2007.

Japan, the largest wheat importer in Asia, announced December 19 that it may 
raise wheat prices by 30 percent. The same day, Indian government officials 
warned of impending food security problems. These were due, according to Prime 
Minister Manmohan Singh, to ³clouds on global financial markets following the 
sub-prime lending crisis.²

Soybean and corn prices have also been pushed up to 34-year and 11-year highs, 
respectively, on the projected shortages and demand for biofuel. These new 
trading levels become the agricultural benchmarks for subsequent trading, and, 
as the Financial Times put it December 17, have the consequence of ³raising 
inflationary pressure and constraining the ability of central banks to mitigate 
economic slowdown.²

Higher fuel costs ultimately lead to higher food prices, via higher shipping 
charges, particularly for nations that import a large proportion of their staple
foods. Shipping costs for bulk commodities have increased by more than 80 
percent in the past year and 57 percent since June, according to the Baltic 
Exchange Dry Index.

The FAO report noted that the enormous increase in freight costs has had the 
effect of dis-integrating the world market in certain regions because many 
import-heavy countries have opted to purchase from closer suppliers, resulting 
in ³prices at regional or localized levels falling out of line with world 
levels.²

The rising oil price not only affects the costs of transportation and 
importation. It also has a direct impact on the costs of farm operation in the 
working of agricultural and industrial processing machinery. Moreover, 
fertilizer, which takes its key component, nitrogen, from natural gas, is also 
spiking in price because of the impact of rising oil prices on the demand and 
costs of other fuels. By the same token, as oil prices rise, the demand for 
biofuel sources such as corn, sugarcane, and soybeans also rises, resulting in 
more and more feedstock crops being devoted to fuel and additives production.

In the US, the use of corn for ethanol production has doubled since 2003, and is
projected by the FAO to increase from 55 million metric tons to 110 million 
metric tons by 2016. The US government is more ambitious. On December 19, 
President Bush signed a new energy bill into law which contains a mandate for 
expanding domestic biofuel production five-fold over the next 15 years, to more 
than 36 billion gallons a year. Already a third of the US corn harvest is 
devoted to ethanol production, surpassing the amount of corn bound for the world
food markets.

As more US cropland is devoted to ethanol-bound corn, other major agricultural 
regions are struggling with weather disasters associated with climate change. 
Australia and the Ukraine, both significant exporters of wheat, have suffered 
extreme weather that damaged crops. A prolonged drought in southern Australia 
has curtailed farming to such a degree that many farmers have sold their land.

Current research suggests that as temperatures rise over the next fifty years by
1 to 2 degrees Celsius, poor countries may lose 135 million hectares (334 
million acres) of arable land because of lost rainfall. In new studies published
earlier this month in the Proceedings of the National Academy of Sciences, 
researchers have cautioned that this estimate may be conservative, and that the 
impact of climate change on food production has been over-simplified.

According to NASA/Goddard Institute of Space Studies researcher Francesco 
Tubiello, complications of climate change on the world food supply may be far 
worse than previously predicted: ³The projections show a smooth curve, but a 
smooth curve has never happened in history. Things happen suddenly, and then you
can¹t respond to them.²

Tubiello¹s research focuses on extreme weather events that have devastated 
entire crops when they coincided with germination and blossoming periods, as was
the case with Italy¹s corn crop in 2003. Tubiello noted that corn yield in the 
Po valley growing region fell to 36 percent following a heat wave that raised 
Italy¹s temperatures 6 degrees over the long-term average.

In addition to the survival thresholds of plants, researchers have begun 
studying the effects of higher temperatures on the physiology and diseases of 
livestock, as well as the spread of pests, molds and viruses native to tropical 
zones. Goddard Institute research has suggested that bluetongue, a viral disease
of cattle and sheep, will move outward from the tropics into regions including 
southern Australia. According to the Earth Institute at Columbia University, 
higher temperatures will lead to higher infertility in livestock and lower dairy
yields.

The implications of these studies are that farming adaptations such as hardier 
crops and shifts in planting times may initially mitigate anticipated global 
warming. Yet over the coming decades, the stress of climate change on the food 
supply will also intensify in abrupt and catastrophic ways for which the 
capitalist system and its ruling elites are entirely unprepared and which they 
are unable to prevent.
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