My Blog

April 12, 2008

Here is what Germany’s Speigel says in an article titled “Chaos spreads as food prices skyrocket”:

Food prices across the globe have been skyrocketing in recent years. Rice prices in Asia have spiked as has the price of bread in Egypt, milk products in Europe and pasta in Italy. The result has been unrest in a number of countries and many more concerned that a mass protest is but a price hike away.

Now, World Bank President Robert Zoellick has called on world leaders to act to ease the global food crisis. Zoellick urged the United States, the European Union, Japan and other developed countries to help plug a $500 million (€319 million) shortfall in the United Nations' World Food Program. In a speech given in Washington, D.C. on Wednesday, Zoellick said the money was urgently needed to meet emergency demands and warned that if politicians did not act now, "many more people will suffer and starve."

Unrest triggered by the higher food and fuel prices has been gaining steam across the globe in recent weeks. During a two-day riot in Egypt earlier this week, one person was killed. Cameroon has also seen street violence. In the Philippines, President Gloria Macapagal Arroyo warned on Tuesday that rice shortages were exacerbating political and social tensions in the country.

The tone of the article is a tad apocalyptical but the numbers are grim.  According to Speigel, the UN estimates that global food prices have risen 65% since 2002, with grain rising 42% and dairy products 80% last year alone. Of course I have already noted in this blog that rice prices in particular have risen dramatically and have caused problems in a number of Asian countries.

Although rising food prices should be good for farmers and so should help address China’s income inequalities, it is unclear the extent to which the authorities here are willing to allow food price increases to pass through to consumers, given their attempts to rein inflationary expectations in.  However if they do try to hold prices down, rising prices for food world-wide, especially in neighboring countries, will pose a problem to China even if it is largely food self-sufficient.  If it is more profitable to deliver rice and other products to neighboring countries than to sell it at home, it wouldn’t be long before we were to see at least part of China’s food production diverted to sales abroad, even if this were made illegal.  Long borders and widespread corruption will make it easy.

The sudden surge in concern about the impact of rising food prices on social stability is a little disconcerting.  With price stability across much of the world for so long, with the exception of the occasional crisis in a place like Argentina after the default in 2001, we have sort of forgotten how rising food prices can indeed cause a great deal of harm and social unrest.  This is certainly worth keeping an eye on, even in China.  Perhaps especially in China.

Comments (4) for "Food is becoming a global pr...

Hi Michael, Thank you for you great blog. It is really enlightening to read. Specifically it allows non experts to grasp what currency-pegging means and implies... On this very subject am I alone to believe that a very significant part of this problem is monetary? How can you properly "save value", except in base products, when most other markets are so damned high (real estate and equity at first) and most currencies are treated as short-term exchange means... I'm now in no situation to invest real long-term. An age issue mostly! I need to invest my personal savings effectively. Just looking to keeping purchasing power on a couple of years. Not a penny more... My feeling is that at this very moment, there is no better way to save your surplus than buying long-term contracts on raw materials. And sure I did in 2007. Why ? Because I'm a hardbeat speculator. Possibly. Because money rates are currently a joke. Sure ! And worldwide by the way. One currency is even called a "reserve currency" whilst wildly inflationatory. Is that a joke as well ? I'll buy into the oil shortage at any time. Sure.... Concerning farming products, what is the part of speculative "market preemption" (London, Chicago...) and what is the part of real short-term needs? I believe I'm no alone as a modest retail investor to wait for decent money market rates to come back wait with my surpluses in non monetary products. Feeling this "run to materials" is a sensible way for some to save their surplus (most currencies are a joke at this time and even my sky-rocketting euros are doing relatively poorly on a five-years basis in terms of REAL purchasing power) I'd like your opinion on the subject. IMHO a Volckerian central banker at the FED (and sensible attitudes at their counterparts in Asia of course) would resolve a significant part of the equation for a lot of dollar-rated commodities... By François - 4/13/2008 4:12 PM

To make it a shorter read, Food is now of the currency system... On top oil and precious metals. By francois - 4/13/2008 4:17 PM

I just want to make a small correction to your entry. The name of the magazine is "Spiegel", which means mirror in german, not "Speigel" By Marcus - 4/13/2008 11:05 PM

hmmm, chairman Mao said before, "抓革命促生产,以粮为纲", " Boost Production, Spread Revoluation, Grain is Key". It really applied aptly to today's world, the age of fancy innovations driving productivity was well over a decade ago, the age of paper driving paper profit imploded last year. It is now time to go back to physical capacity to produce, feed, burn. It is vital to count acrage, tonnage, barrels. Hopefully in near future, we dont have to count divisions/fight jets/submarines By isaac - 4/14/2008 2:39 PM