Riot 2011: Global Food Crisis and Arab Revolts

Posted: March 7, 2011 in Uncategorized
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A series of corporate and alternative news articles on the global food crisis and related uprisings of 2011.  Although largely overshadowing the food crisis, the Arab Revolts of early 2011 were initially sparked by rising food prices (wheat, grain, and corn) and paralleled similar disturbances throughout Asia, Africa and South/Central America.  Contributing factors to the food crisis include reductions in agricultural lands (from pollution, toxins, depletion, urbanization, etc.), destruction of crops (from flooding, droughts, wildfires, etc.), and rising fuel costs.  The Arab Revolts are already contributing to rising oil prices, which in turn will lead to higher food costs (and for all commodities).  Happy New Year!

* The following article, published in October 2010, predicted the global food crisis of 2011 based on emerging trends in the agricultural market. Oriented for capitalists, the article ends with advice on investing in agricultural stocks whose prices were sure to rise as supplies dwindled.

The Food Shock of 2011

by Addison Wiggin,

Forbes blogs, Oct. 27 2010

http://blogs.forbes.com/greatspeculations/2010/10/27/the-food-crisis-of-2011/?boxes=Homepagechannels

Food prices are high and going higher

Every month, JPMorgan Chase dispatches a researcher to several supermarkets in Virginia. The task is to comparison shop for 31 items.

In July, the firm’s personal shopper came back with a stunning report: Wal-Mart had raised its prices 5.8% during the previous month. More significantly, its prices were approaching the levels of competing stores run by Kroger and Safeway. The “low-price leader” still holds its title, but by a noticeably slimmer margin.

Within this tale lie several lessons you can put to work to make money. And it’s best to get started soon, because if you think your grocery bill is already high, you ain’t seen nothing yet. In fact, we could be just one supply shock away from a full-blown food crisis that would make the price spikes of 2008 look like a happy memory.

Fact is, the food crisis of 2008 never really went away.

True, food riots didn’t break out in poor countries during 2009 and warehouse stores like Costco didn’t ration 20-pound bags of rice…but supply remained tight.

Prices for basic foodstuffs like corn and wheat remain below their 2008 highs. But they’re a lot higher than they were before “the food crisis of 2008” took hold. Here’s what’s happened to some key farm commodities so far in 2010…

  • Corn: Up 63%
  • Wheat: Up 84%
  • Soybeans: Up 24%
  • Sugar: Up 55%

What was a slow and steady increase much of the year has gone into overdrive since late summer. Blame it on two factors…

  • Aug. 5: A failed wheat harvest prompted Russia to ban grain exports through the end of the year. Later in August, the ban was extended through the end of 2011. Drought has wrecked the harvest in Russia, Ukraine and Kazakhstan – home to a quarter of world production
  • Oct. 8: For a second month running, the Agriculture Department cut its forecast for US corn production. The USDA predicts a 3.4% decline from last year. Damage done by Midwestern floods in June was made worse by hot, dry weather in August.

America’s been blessed with year after year of “record harvests,” depending on how you measure it. So when crisis hits elsewhere in the world, the burden of keeping the world fed falls on America’s shoulders.

According to Soren Schroder, CEO of the food conglomerate Bunge North America, US grain production has filled critical gaps in world supply three times in the last five years, including this summer…

  • In 2010, when drought hit Russian wheat
  • In 2009, when drought hit Argentine soybeans
  • In 2007–08, when drought hit Australian wheat

So what happens when those “record harvests” no longer materialize?

In September, the US Department of Agriculture estimated that global grain “carryover stocks” – the amount in the world’s silos and stockpiles when the next harvest begins – totaled 432 million tons.
That translates to 70 days of consumption. A month earlier, it was 71 days. The month before that, 72. At this rate, come next spring, we’ll be down to just 64 days – the figure reached in 2007 that touched off the food crisis of 2008.

But what happens if the U.S. scenario is worse than a “nonrecord” harvest? What if there’s a Russia-scale crop failure here at home?

“When we have the first serious crop failure, which will happen,” says farm commodity expert Don Coxe, “we will then have a full-blown food crisis” – one far worse than 2008.

Coxe has studied the sector for more than 35 years as a strategist for BMO Financial Group. He says it didn’t have to come to this. “We’ve got a situation where there has been no incentive to allocate significant new capital to agriculture or to develop new technologies to dramatically expand crop output.”
“We’ve got complacency,” he sums up. “So for those reasons, I believe the next food crisis – when it comes – will be a bigger shock than $150 oil.”

A recent report from HSBC isn’t quite so alarming…unless you read between the lines. “World agricultural markets,” it says, “have become so finely balanced between supply and demand that local disruptions can have a major impact on the global prices of the affected commodities and then reverberate throughout the entire food chain.”

That was the story in 2008. It’s becoming the story again now. It may go away in a few weeks or a few months. But it won’t go away for good. It’ll keep coming back…for decades.

There’s nothing you or I can do to change it. So we might as well “hedge” our rising food costs by investing in the very commodities whose prices are rising now…and will keep rising for years to come.
“While investor eyes are focused on the gold price as it touches new highs,” reads a report from Japan’s Nomura Securities, “the acceleration in global food price is unrestrained. We continue to believe that soft commodities will outperform base and precious metals in the future.”

So how do you do it? As recently as 2006, the only way Main Street investors could play the trend was to buy commodity futures. It was complicated. It involved swimming in the same pool with the trading desks of the big commercial banks. And it usually involved buying on margin – that is, borrowing money from the brokerage. If the market went against you, you’d lose even more than your initial investment.

Nowadays, an exchange-traded fund can do the heavy lifting for you, no margin required. The name of the fund is the PowerShares DB Agriculture ETF (DBA).

There are at least a half-dozen ETFs that aim to profit when grain prices rise. We like DBA the best because it’s easy to understand. It’s based on the performance of the Deutsche Bank Agriculture Index, which is composed of the following:

  • Corn 12.5%
  • Soybeans 12.5%
  • Wheat 12.5%
  • Sugar 12.5%
  • Cocoa 11.1%
  • Coffee 11.1%
  • Cotton 2.8%
  • Live Cattle 12.5%
  • Feeder Cattle 4.2%
  • Lean Hogs 8.3%

So you have a mix here of 50% America’s staple crops of corn, beans, wheat and sugar…25% beef and pork…and 25% cocoa, coffee and cotton. It might not be a balanced diet (especially the cotton), but it makes for a good balance of assets within your first foray into “ag” investing.
The meat weighting in here looks especially attractive compared to some of DBA’s competitors, which are more geared to the grains. It takes about six months for higher grain prices to translate to higher cattle and hog prices.

You can capture that potential upside right now…and you’ll be glad you did when you sit down to a good steak dinner a few months down the line. After all, it’s going to cost you more.

The Food Shock of 2011 by Addison Wiggin originally appeared in the Daily Reckoning.

On The Verge Of A Global Food Crisis

By AGUSTINO FONTEVECCHIA

Forbes blogs, Jan. 13 2011

http://blogs.forbes.com/afontevecchia/2011/01/13/on-the-verge-of-a-global-food-crisis/

A week after the UN’s Food and Agricultural Organization (FAO) warned of a possible “food price shock” if prices continued to rise, the USDA downwardly revised its outlook for global harvests of key crops, sending future prices surging and fueling concerns over a repeat of the 2008 food crisis which sparked riots in over 30 countries. With riots already occurring in Algeria and Mozambique, the impending crisis even sparked a reaction by World Bank Chief Robert Zoellick, who sought to calm the already uneasy markets.

The global food situation doesn’t look too promising, as floods in Australia and excessively hot weather in Latin America harm harvests, upward pressure is mounting on prices. According to the FAO, a basket tracking the wholesale cost of food commodities such as wheat, corn, rice, vegetable oils, and meats, has already topped 2008’s peak values, reaching 214.5 points (compared to 213.5 on June 2008). And, as the USDA cuts its global grain supply outlook, soybean, corn, and wheat prices have spiked, nearing or passing 30-month highs.

The situation prompted a response by Zoellick, who a few months ago rallied the markets with

talk of the gold standard. On this occasion, he told the Financial Times that “with food accounting for a large and volatile share of tight family budgets in the poorest countries, rising prices are re-emerging as a threat to global growth and social stability.” Zoellick went on to enumerate measures to make markets more efficient, such as establishing small regional humanitarian reserves in disaster-prone, infrastructure-poor areas and improving long-range weather forecasting and monitoring.

Zoellick’s op-ed piece was titled “Free markets can still feed the world,” but the problem is that many of these markets are actually not liberated. During the ‘08 crisis, many producing nations sought to freeze prices and curb exports in order to keep domestic food stocks available, Argentina and Russia were among them.

Some of this could be happening again. As futures for corn, soybeans, and wheat have gained 94%, 51%, and 80% respectively since their June gains, producers in Argentina are still struggling with the same problems as in 2008. On Wednesday, the “Engagement Table,” a combination of the four largest groups fusing agricultural producers announced they were boycotting the government by withdrawing from the wheat markets to protest bad policies and tax exports, reports Argentina’s Fortuna. By refusing to sell their products, producers are denying the State the possibility of collecting juicy taxes needed to keep their precious fiscal surplus.

Agricultural markets are intervened by the state in Argentina, where exports are limited by taxes while domestic sales must go through the state, which pays meagerly. In 2008, the country was put on a standstill as the ruling party, headed by the late Nestor Kirchner and his wife, President Cristina Kirchner, attempted to hike export taxes on soy beans to about 45%. A three-month standoff, on the verge of erupting into civil violence, ended when vice-president Cobos, a member of opposing party Union Civica Radical, acted as tie-breaker in the Senate, voting against the government’s tax hike.
Argentina, a top three exporter of corn, wheat, and soy, faces supply deficits on various other agricultural products as well, with highly regulated soy and beef markets as well. This situation is not unique to Argentina, as spiking prices will lead to trade restrictions around the globe.

Another problem Zoellick doesn’t take into consideration is the falling value of the dollar. Ben Bernanke’s quantitative easing, along with loose monetary policy in developed economies, have caused the well-known flood of capital to emerging economies, as investors seek out higher returns. A tanking dollar will lead to greater demand for dollar-denominated commodities, as these appear cheaper due to the forced appreciation of emerging market currencies (the dollar doesn’t just go down, as exchange rates are relative or in relation to each other). Those same-dollar denominated prices have been shooting through the roof in response to increased demand, especially from China and India, and an attempt to hedge against inflation. And inflation, in turn, will erode the purchasing power of the world’s poor, which, coupled with higher prices, could lead to food riots and social unrest.

The world is treading on dangerous ground. Market forces are in place for another global food crisis, and, as the wheels keep turning, it will become harder for these to be put in reverse.

The Great Food Crisis of 2011

by Lester R. Brown, Earth Policy Institute

January 15, 2011

http://permaculture.org.au/2011/01/15/the-great-food-crisis-of-2011/

As the new year begins, the price of wheat is setting an all-time high in the United Kingdom. Food riots are spreading across Algeria. Russia is importing grain to sustain its cattle herds until spring grazing begins. India is wrestling with an 18-percent annual food inflation rate, sparking protests. China is looking abroad for potentially massive quantities of wheat and corn. The Mexican government is buying corn futures to avoid unmanageable tortilla price rises. And on January 5, the U.N. Food and Agricultural organization announced that its food price index for December hit an all-time high.
But whereas in years past, it’s been weather that has caused a spike in commodities prices, now it’s trends on both sides of the food supply/demand equation that are driving up prices. On the demand side, the culprits are population growth, rising affluence, and the use of grain to fuel cars. On the supply side: soil erosion, aquifer depletion, the loss of cropland to non-farm uses, the diversion of irrigation water to cities, the plateauing of crop yields in agriculturally advanced countries, and—due to climate change —crop-withering heat waves and melting mountain glaciers and ice sheets. These climate-related trends seem destined to take a far greater toll in the future.

There’s at least a glimmer of good news on the demand side: World population growth, which peaked at 2 percent per year around 1970, dropped below 1.2 percent per year in 2010. But because the world population has nearly doubled since 1970, we are still adding 80 million people each year. Tonight, there will be 219,000 additional mouths to feed at the dinner table, and many of them will be greeted with empty plates. Another 219,000 will join us tomorrow night. At some point, this relentless growth begins to tax both the skills of farmers and the limits of the earth’s land and water resources.
Beyond population growth, there are now some 3 billion people moving up the food chain, eating greater quantities of grain-intensive livestock and poultry products. The rise in meat, milk, and egg consumption in fast-growing developing countries has no precedent. Total meat consumption in China today is already nearly double that in the United States.

The third major source of demand growth is the use of crops to produce fuel for cars. In the United States, which harvested 416 million tons of grain in 2009, 119 million tons went to ethanol distilleries to produce fuel for cars. That’s enough to feed 350 million people for a year. The massive U.S. investment in ethanol distilleries sets the stage for direct competition between cars and people for the world grain harvest. In Europe, where much of the auto fleet runs on diesel fuel, there is growing demand for plant-based diesel oil, principally from rapeseed and palm oil. This demand for oil-bearing crops is not only reducing the land available to produce food crops in Europe, it is also driving the clearing of rainforests in Indonesia and Malaysia for palm oil plantations.

The combined effect of these three growing demands is stunning: a doubling in the annual growth in world grain consumption from an average of 21 million tons per year in 1990-2005 to 41 million tons per year in 2005-2010. Most of this huge jump is attributable to the orgy of investment in ethanol distilleries in the United States in 2006-2008.

While the annual demand growth for grain was doubling, new constraints were emerging on the supply side, even as longstanding ones such as soil erosion intensified. An estimated one third of the world’s cropland is losing topsoil faster than new soil is forming through natural processes—and thus is losing its inherent productivity. Two huge dust bowls are forming, one across northwest China, western Mongolia, and central Asia; the other in central Africa. Each of these dwarfs the U.S. dust bowl of the 1930s.
Satellite images show a steady flow of dust storms leaving these regions, each one typically carrying millions of tons of precious topsoil. In North China, some 24,000 rural villages have been abandoned or partly depopulated as grasslands have been destroyed by overgrazing and as croplands have been inundated by migrating sand dunes.

In countries with severe soil erosion, such as Mongolia and Lesotho, grain harvests are shrinking as erosion lowers yields and eventually leads to cropland abandonment. The result is spreading hunger and growing dependence on imports. Haiti and North Korea, two countries with severely eroded soils, are chronically dependent on food aid from abroad.

Meanwhile aquifer depletion is fast shrinking the amount of irrigated area in many parts of the world; this relatively recent phenomenon is driven by the large-scale use of mechanical pumps to exploit underground water. Today, half the world’s people live in countries where water tables are falling as over-pumping depletes aquifers. Once an aquifer is depleted, pumping is necessarily reduced to the rate of recharge unless it is a fossil (non-replenishable) aquifer, in which case pumping ends altogether. But sooner or later, falling water tables translate into rising food prices.
Irrigated area is shrinking in the Middle East, notably in Saudi Arabia, Syria, Iraq, and possibly Yemen. In Saudi Arabia, which was totally dependent on a now-depleted fossil aquifer for its wheat self-sufficiency, production is in a free-fall. From 2007 to 2010, Saudi wheat production fell by more than two thirds. By 2012, wheat production will likely end entirely, leaving the country totally dependent on imported grain.

The Arab Middle East is the first geographic region where spreading water shortages are shrinking the grain harvest. But the really big water deficits are in India, where the World Bank numbers indicate that 175 million people are being fed with grain that is produced by over-pumping. In China, over-pumping provides food for some 130 million people. In the United States, the world’s other leading grain producer, irrigated area is shrinking in key agricultural states such as California and Texas.
The last decade has witnessed the emergence of yet another constraint on growth in global agricultural productivity: the shrinking backlog of untapped technologies. In some agriculturally advanced countries, farmers are using all available technologies to raise yields. In Japan, the first country to see a sustained rise in grain yield per acre, rice yields have been flat now for 14 years. Rice yields in South Korea and China are now approaching those in Japan. Assuming that farmers in these two countries will face the same constraints as those in Japan, more than a third of the world rice harvest will soon be produced in countries with little potential for further raising rice yields.
A similar situation is emerging with wheat yields in Europe. In France, Germany, and the United Kingdom, wheat yields are no longer rising at all. These three countries together account for roughly one-eighth of the world wheat harvest. Another trend slowing the growth in the world grain harvest is the conversion of cropland to non-farm uses. Suburban sprawl, industrial construction, and the paving of land for roads, highways, and parking lots are claiming cropland in the Central Valley of California, the Nile River basin in Egypt, and in densely populated countries that are rapidly industrializing, such as China and India. In 2011, new car sales in China are projected to reach 20 million—a record for any country. The U.S. rule of thumb is that for every 5 million cars added to a country’s fleet, roughly 1 million acres must be paved to accommodate them. And cropland is often the loser.
Fast-growing cities are also competing with farmers for irrigation water. In areas where all water is being spoken for, such as most countries in the Middle East, northern China, the southwestern United States, and most of India, diverting water to cities means less irrigation water available for food production. California has lost perhaps a million acres of irrigated land in recent years as farmers have sold huge amounts of water to the thirsty millions in Los Angeles and San Diego.
The rising temperature is also making it more difficult to expand the world grain harvest fast enough to keep up with the record pace of demand. Crop ecologists have their own rule of thumb: For each 1 degree Celsius rise in temperature above the optimum during the growing season, we can expect a 10 percent decline in grain yields. This temperature effect on yields was all too visible in western Russia during the summer of 2010 as the harvest was decimated when temperatures soared far above the norm.

Another emerging trend that threatens food security is the melting of mountain glaciers. This is of particular concern in the Himalayas and on the Tibetan plateau, where the ice melt from glaciers helps sustain not only the major rivers of Asia during the dry season, such as the Indus, Ganges, Mekong, Yangtze, and Yellow rivers, but also the irrigation systems dependent on these rivers. Without this ice melt, the grain harvest would drop precipitously and prices would rise accordingly.
And finally, over the longer term, melting ice sheets in Greenland and West Antarctica, combined with thermal expansion of the oceans, threaten to raise the sea level by up to six feet during this century. Even a three-foot rise would inundate half of the rice-land in Bangladesh. It would also put under water much of the Mekong Delta that produces half the rice in Vietnam, the world’s number two rice exporter. Altogether there are some 19 other rice-growing river deltas in Asia where harvests would be substantially reduced by a rising sea level.

The current surge in world grain and soybean prices, and in food prices more broadly, is not a temporary phenomenon. We can no longer expect that things will soon return to normal, because in a world with a rapidly changing climate system there is no norm to return to.

The unrest of these past few weeks is just the beginning. It is no longer conflict between heavily armed superpowers, but rather spreading food shortages and rising food prices—and the political turmoil this would lead to—that threatens our global future. Unless governments quickly redefine security and shift expenditures from military uses to investing in climate change mitigation, water efficiency, soil conservation, and population stabilization, the world will in all likelihood be facing a future with both more climate instability and food price volatility. If business as usual continues, food prices will only trend upward.

Food prices to skyrocket, riots could follow, suggests USDA

March 2, 2011

http://www.naturalnews.com/031545_USDA_food_prices.html

(NaturalNews) When the upswing in commodity prices eventually makes its way throughout the food system in mid-to-late 2011, food prices are sure to spike with levels potentially reaching those of 2008, announced U.S. Department of Agriculture (USDA) economist Ephraim Leibtag at the agency’s annual Outlook Forum. And if conditions escalate rapidly, there is also the potential for food riots and other civil unrest.

The USDA is predicting a 3.5 percent increase in food prices in 2011, which is about twice the overall inflation rate but less than the 2008 increase, according to a recent Reuters report. In 2008, food prices rose 5.5 percent, which represents the highest increase since 1990. But the possibility of food prices dramatically rising in 2011 like they did in 2008 is a definite possibility.

“Given that it’s still earlier in the year, I’m prone to be conservative on the side of the forecast,” said Leibtag. “It’s a possibility,” he added, concerning the likelihood of massive inflation in food costs like was seen in 2008.

Leibtag also explained the agency’s expectation of a four percent rise in costs for meats, poultry, and fish; a 3.5 percent increase for fruits and vegetables; a four percent increase for cereals and bakery products; and a three percent increase in sugar and sweets costs. All increases represent anywhere from a 20 to 60 percent increase over last year’s increases.

In 2008, food shortages and rapid price increases led to riots in 25 different countries around the world. And the same may happen again, including even in the US, due to factors like the devaluation of the dollar, crop losses, rising oil costs, and other economic factors.

The warning serves as a wake-up call to Americans to take back their land and begin growing more food on the local and regional scale. According to statistics from Farm Aid, a family farming advocacy group, roughly five million US farms have been lost since the 1930s, and about 330 farmers every week leave their land. If this trend continues, the situation will only worsen.

Factory farming operations have essentially replaced local farming throughout the country. And government policies like subsidization of genetically-modified (GM) crops only continues to drive small-scale farmers off their land and exacerbate the problem.

Arab uprisings foreshadow climate havoc-UK diplomat

By Gerard Wynn, Reuters Africa

Tue Feb 22, 2011

http://af.reuters.com/article/libyaNews/idAFLDE71K1ZW20110222?sp=true

* Food prices at near record, in part result of drough

* New climate deal this year looks out of reach-U.S. Envoy
LONDON, Feb 22 (Reuters) – A string of Arab uprisings are giving a foretaste of the likely havoc that climate change will cause without greater effort to curb greenhouse gas emissions, a British foreign ministry official warned.

Soaring food prices, stoked by Russia’s drought last year and subsequent ban on wheat exports, were an additional trigger in the popular revolts across North Africa and the Middle East mostly blamed on public frustration with autocratic rule.

“Treat this as a ‘prequel’, because if we can’t remove some of those upward pressures on resource stresses then crises that are difficult to deal with when they happen will become more likely,” said John Ashton, special representative for climate change at Britain’s foreign ministry.
“How these things are going to rattle around the world and where they’re going to hit you is inherently unpredictable,” he told Reuters in an interview, using the example of food riots in Mozambique after the Russian wheat export ban.

Tackling climate change by finding low-carbon, energy alternatives to expensive fossil fuels was central to easing energy, water and food security fears, he said in the interview on Monday, pointing to crop failures in Bolivia and oil prices which have passed $100 a barrel.
Ashton was speaking after giving a lecture in London where he blamed diplomats for putting international climate talks ahead of efforts to convince their own peoples of the risk posed by rising greenhouse gas emissions.

“Most foreign policy elites have yet to embrace and act on this. It would not be harsh to call that a failure of diplomacy,” he said.

Public support was essential for governments to agree new legally-binding emissions cuts, he said, to replace those in the first round of the existing Kyoto Protocol which ends in 2012.
Countries should set voluntary curbs on emissions for now, U.S. climate envoy Todd Stern said on Monday in South Africa, arguing that agreement on binding curbs this year was out of reach.
A Libyan uprising follows revolts which toppled the long-time rulers of Tunisia and Egypt and threatened entrenched dynasties including Bahrain. (Reporting by Gerard Wynn, Editing by David Stamp)
© Thomson Reuters 2011 All rights reserved

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