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Food prices are up, up and up!

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Interesting release from the Earth Policy Institute.

On the 3rd February I wrote a piece about the above Institute of which I had recently become aware.  That was in conjunction with the book World on the Edge that I had started reading.  Since then I have been summarising chapters on Learning from Dogs under the general heading of Total, Utter Madness.

So with food prices continuing to reach record levels around the world, with all the implications this carries for millions of families, I was interested to read the following which was emailed to me on the 15th from the EPI.

World One Poor Harvest Away From Chaos

www.earth-policy.org/plan_b_updates/2011/update91

By Lester R. Brown
Earth Policy Release
Plan B Update
February 15, 2011

Today there are three sources of growing demand for food: population growth; rising affluence and the associated jump in meat, milk, and egg consumption; and the use of grain to produce fuel for cars.

In early January, the U.N. Food and Agriculture Organization (FAO) reported that its Food Price Index had reached an all-time high in December, exceeding the previous record set during the 2007-08 price surge. Even more alarming, on February 3rd, the FAO announced that the December record had been broken in January as prices climbed an additional 3 percent.

Will this rise in food prices continue in the months ahead? In all likelihood we will see further rises that will take the world into uncharted territory in the relationship between food prices and political stability.

Everything now depends on this year’s harvest. Lowering food prices to a more comfortable level will require a bumper grain harvest, one much larger than the record harvest of 2008 that combined with the economic recession to end the 2007-08 grain price climb.

If the world has a poor harvest this year, food prices will rise to previously unimaginable levels. Food riots will multiply, political unrest will spread and governments will fall. The world is now one poor harvest away from chaos in world grain markets.

Over the longer term, expanding food production rapidly is becoming more difficult as food bubbles based on the overpumping of underground water burst, shrinking grain harvests in many countries. Meanwhile, increasing climate volatility, including more frequent, more extreme weather events, will make the expansion of production more erratic.

Some 18 countries have inflated their food production in recent decades by overpumping aquifers to irrigate their crops. Among these are China, India, and the United States, the big three grain producers.

When water-based food bubbles burst in some countries, they will dramatically reduce production. In others, they may only slow production growth. In Saudi Arabia, which was wheat self-sufficient for more than 20 years, the wheat harvest is collapsing and will likely disappear entirely within a year or so as the country’s fossil (nonreplenishable) aquifer, is depleted.

In Syria and Iraq, grain harvests are slowly shrinking as irrigation wells dry up. Yemen is a hydrological basket case, where water tables are falling throughout the country and wells are going dry. These bursting food bubbles make the Arab Middle East the first geographic region where aquifer depletion is shrinking the grain harvest.

While these Middle East declines are dramatic, the largest water-based food bubbles are in India and China. A World Bank study indicates that 175 million people in India are being fed with grain produced by overpumping. In China, overpumping is feeding 130 million people. Spreading water shortages in both of these population giants are making it more difficult to expand their food supplies.

Beyond irrigation wells going dry, farmers must contend with climate change. Crop ecologists have a rule of thumb that for each 1-degree-Celsius rise in temperature during the growing season, grain yields drop 10 percent. Thus it was no surprise that searing temperatures in western Russia last summer shrank the grain harvest by 40 percent.

On the demand side of the food equation, there are now three sources of growth. First is population growth. There will be 219,000 people at the dinner table tonight who were not there last night, many of them with empty plates. Second is rising affluence. Some three billion people are now trying to move up the food chain, consuming more grain-intensive meat, milk, and eggs. And third, massive amounts of grain are being converted into oil, i.e. ethanol, to fuel cars. Roughly 120 million tons of the 400-million-ton 2010 U.S. grain harvest are going to ethanol distilleries.

Encouragingly, President Sarkozy of France vowed to use his term as president of the G-20 in 2011 to stabilize world food prices. Thus far the talk has been about such measures as regulating export restrictions and speculation, but if the G-20 ends up treating the symptoms and not the causes of rising food prices, the effort will be of little avail.

What is needed now is a worldwide effort to raise water productivity, similar to the one launched by the international community a half century ago to raise cropland productivity. This earlier effort tripled the world grain yield per acre between 1950 and 2010.

On the climate front, the goal of cutting carbon emissions 80 percent by 2050—the widely accepted goal by governments—is not sufficient. The challenge now is to cut carbon emissions 80 percent by 2020 with a World War II-type mobilization to raise energy efficiency and to shift from fossil fuels to wind, solar, and geothermal energy.

On the demand side, we need to accelerate the shift to smaller families. There are 215 million women in the world who want to plan their families, but who lack access to family planning services. They and their families represent over a billion of the world’s poorest people. While filling the family planning gap, we need to simultaneously launch an all-out effort to eradicate poverty. Once under way, these two trends reinforce each other.

And in an increasingly hungry world, converting grain into fuel for cars is not the way to go. It is time to remove subsidies for converting grain and other crops into automotive fuel. If President Sarkozy can get the G-20 to focus on the causes of rising food prices, and not just the symptoms, then food prices can be stabilized at a more comfortable level.

Lester R. Brown is President of the Earth Policy Institute and author of 
World on the Edge: How to Prevent Environmental and Economic Collapse.

Additional data and information sources at www.earth-policy.org

Feel free to pass this information along to friends, family members, and colleagues!

*This piece was originally published through Global Viewpoint, LA Times Syndicate, on Monday, February 9, 2011.

Small update. Some few hours after writing the above piece, the BBC News Website had an item on soaring food prices.  Here’s a taste (pardon the pun!).

The World Bank says food prices are at “dangerous levels” and have pushed 44 million more people into poverty since last June.

According to the latest edition of its Food Price Watch, prices rose by 15% in the four months between October 2010 and January this year.

Food price inflation is felt disproportionately by the poor, who spend over half their income on food.

If you want to read the February Food Price Watch report published by the World Bank, then that link is here. http://www.worldbank.org/foodcrisis/food_price_watch_report_feb2011.html

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Commodity trading

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Something really disquieting about this.

I don’t know about you but I’m picking up more and more ‘vibes’ from all over the place that strongly suggest an increasing awareness of the need for real change in society.  Anyway, more of this another time.

My article today is base on an editorial in the Mole Valley Farmers Newsletter

 

MVF logo

 

for October 2010 (no. 557).  First some background to this organisation.

Mole Valley Farmers is described on their web site thus:

Mole Valley Farmers was started in 1960 by a small group of farmers around South Molton* who were concerned by the discriminatory practices and the large margins being taken by many of their input suppliers. From the outset it was decided to treat all members equally, subject only to quantity allowance and that the Company would operate on the minimum margin to allow continuity and growth. Today it remains one of a few true co-operatives in the supply industry.

Mole Valley Farmers consists of:

  • Nine branches in the south west supplying a vast range of goods to farmers and the public alike. These range from farm requirements to clothing, footwear, garden supplies, pet food and accessories, domestic goods and power tools
  • Our own feed mills for all animal feeds
  • Fertiliser blending plants
  • A specialist mineral plant
  • A quality farm building division

Of special importance are our farmer customers who purchase animal feed, fertilisers and minerals, all manufactured to a high specification by Mole Valley Farmers and delivered direct from point of manufacture to farm or to branches for collection in small lots.

* South Molton is in Devon, England about half-way between Barnstaple and Tiverton and the history of this interesting firm may be found here.

I have to declare a certain interest in that when I lived in Harberton, Devon for a number of years, we were non-farmer Members of Mole Valley Farmers for feed for our chickens and ducks and later on for Pharaoh.  So when I arrived to stay recently for a week with friends in Brixham, Devon,  my eye quickly picked up the familiar look of the MVF Newsletter lying on the table.

This is the editorial, reproduced in full with the kind permission of the Newsletter editor, from the pen of David Burke, Chairman of MVF.

Commodity trading

Until relatively recently, the price of food was set by the forces of supply and demand for the food itself, which worked reasonably well in developed countries able to purchase in times of shortage.  For the last century farmers have been able to reduce some of the market risk by forward selling crops to a trader in that market, at a price that fair to both parties.

This type of trading was tightly regulated and only those who were directly involved could participate and it worked well.  At some time in the mid-90s, Goldman Sachs, with other financial institutions, successfully lobbied for the regulations to be abolished.

Forward contracts became derivatives, which could be bought and sold repeatedly by traders, which enabled the financial institutions to become involved.  This type of investment really took off when the American and European pension market collapsed, together with that for normally traded derivatives like metals, prior to the recession, although actual food supply and demand remained relatively in balance.  Last year Goldman Sachs reportedly made £3.2bn profit from derivatives trading.

In spite of Russia’s grain export ban and some other weather affected harvests, both the EU commission and the International Grains Council report more than adequate reserves of grain to meet demand and that the carry-over stocks are likely to be the second highest for years.  The rumoured (but non-existent) wheat shortage that is driving up all feed prices, is entirely due to actions of the world’s principle investment bankers and their investors, which have serious implications throughout the globe.  Whilst few in the developed world mostly in the Northern Hemisphere, will go hungry, it is a growing tragedy for the poorer countries in the Southern Hemisphere where three-quarters of the world’s population live.  According to the Food and Agricultural Organisation, one third of the population lack food security and 792m people there are undernourished to varying degrees of starvation.  But most damning of all, some 12m children die annually of malnourishment.  Derivative speculation, which pushes up the cost of grains and in particular wheat, is responsible for food inflation that is proportionally greater for the impoverished nations.

Re-regulation of the basic food market to prevent a recurrence of the spikes of 2007 and 2010 would go some way to stabilising global food costs and help with developing nations, though without a great deal of pressure from compassionate people, this will be difficult, given the influence that the world’s richest investors have over governments.  Alternatively, primary food producers worldwide are paid a high enough price for their produce to enable them to invest in research and best practice, as well as in efficient equipment.  This concept received the approval of the European Parliament on 9th September and although they are considering legislation to ensure farmers receive a fairer share of the consumer price, it may be difficult to implement other than through a properly funded and regulated CAP.

Well said, Mr Burke.

NB.  The web links in Mr Burke’s article have been inserted by me, they were not in the original article.

By Paul Handover

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