2011 began with food riots in Tunisia due to the high prices for staple products like sugar, milk and bread. Food, or lack of it, fueled public protests in Egypt in February. A similar food inflation rate (18%) is plaguing India. Russia and China are seeking massive imports of
grain and corn to feed their people and livestock. Mexico is buying corn futures to stave off unmanageable spikes. Even the UK is experiencing historic high grain prices.
Food prices around the world continue to rise at an unsustainable rate. The United Nations Food and Agriculture Organization (FAO) reported in January that its food index jumped 32% in the second half of 2010, the highest single jump since FAO began tracking food staple prices in 1990. Abdolrez Abbassian, an economist at FAO said that food prices were once again entering into a “danger territory”. In the developing world, people spend as much as 50% of their income on food and according to the World Bank, 44 million people have been driven into extreme poverty since mid 2010 due solely to increases in the cost of wheat, corn, and oil.
The U.S. Department of Agriculture predicts food prices in the U.S. will rise an additional 4% percent this year. Joseph Glauber, chief economist at the Department of Agriculture says that rising costs of agriculture products will hit hardest with a sharp increase in meat and dairy
products. As grain prices rise, farmers usually reduce the size of their herds leading to less beef, pork and dairy products which in turn will drive up the price. 40% of the U.S. corn crop goes to feed animals. In the last 6 months of 2010 global corn prices jumped from $3.50 to $7.00 a bushel while wheat jumped 80%. Glauber predicts that this trend will continue as prices rise and global supplies contract.
While all this has been going on our Consumer Price Index (CPI) only rose a modest 1.6%. The CPI is more of an administrative slight of
hand than a reflection on reality. In America the CPI percent of income spent on food is only 11% whereas in Indian it’s 47% and in China it’s 34%. Does it make sense that Americans only spend 11%? It does if you are a politician. The CPI is kept artificially low so that it doesn’t
automatically trigger cost of living increases for government employees, federal retirees, Social Security and disability recipients. On paper it looks good – unless you are the one trying to balance your food budget.
U. S. wholesale prices jumped in February with the steepest rise in 36 years causing food prices to soar 3.9 %, the biggest gain since November 1974. While meat and dairy prices rose, most of the increase was due to a 50% rise in the price of vegetables. Don’t expect prices to drop any time in the near future!
MIT pioneered an initiative called the Billion Prices Project – tracking food prices for about 5 million products sold online in 70 countries. In the
U.S. they tracked 550,000 products. According to MIT the “real” inflation is roughly 66% higher than reported by CPI.
China, one of the largest growers and consumers of wheat is suffering through its worst drought in 60 years. By early 2011 almost 12.5 million acres of winter wheat was damaged. India, the second largest grower of wheat is also suffering a drought. If production drops in both countries at the same time, the impact on wheat prices will be considerable. Robert Zeigler, director of International Rice Research Institute said that “China’s grain situation is critical to the rest of the world – if they are forced to go out on the market to buy wheat for their population, it could send huge shockwaves throughout the world’s market” dramatically reducing supplies by while increasing prices.
Russia is also suffering wheat shortages due to drought and wildfires. In December Prime Minister Putin had to send emergency grain supplies to the interior parts of Russia for livestock feed and to Moscow and St. Petersburg for human consumption. Russia banned all grain exports in 2010, afraid they would not have enough to feed their own people.
Soybeans is Argentina’s most important crop and plays a major role in driving the economy but a drought has had devastating effects. Their corn crop losses could also be considerable.
Flooding in Australia is playing havoc with their sugar cane, potatoes and wheat crops and the government is predicting shortages for the next 3 years.
Late 2010, heavy rains in Canada wiped out much of their wheat crop.
The USDA cut is forecasts in January for corn and soybean production in the U.S. and across the globe. They estimate that by the end of August corn farmers will only have just 675 million bushels ready for market. In a world of 7 billion people – that is just a 18 day supply. Global inventory
levels of corn are nearing record lows driven by disappointing 2010 production. Ending corn stocks for 2010/2011 will be the lowest since 1995/1996. With lower production of corn crops to feed the world does it make sense that a large part of America’s corn crop will be used for ethanol?
In the 2005 and the 2007 energy bills, Congress mandated that ethanol be incorporated into fuel blends. While virtually any car can operate on a blend of 10% ethanol, flexible fuel cars use a blend of 85% ethanol called E85. An alternative aviation fuel for certain types of aircraft
engines is also being developed (AGE-85). Ethanol is also used in the manufacture of pharmaceuticals, paints and lacquers as well as hairspray, mouthwash, perfume, cologne and deodorant. As more and more corn gets burned in our cars there is less corn for food for humans and animals. As the price of corn has soared, so has the price of ethanol. From early 2010 to early 2011 ethanol prices rose almost 50% from roughly $1.70 per gallon to $2.50 per gallon. We currently use nearly one-third of the U.S. corn crop to make ethanol. The USDA estimates that in the coming years, 70% of corn usage will be for fuel, not food.
It takes 26 pounds of corn to equal one gallon of ethanol, or roughly 2 gallons per bushel. Cornell University found that it takes 140 gallons of fossil fuels to plant, grow and harvest one acre of corn, which is around 183 bushels. Once harvested, it takes even more fossil fuels to convert the corn into ethanol. Cornell concluded that it took more fuel to produce ethanol than ethanol would yield in return. They came to the same conclusion using switch grass, wood, soybean, and sunflowers. So why would our government continue to subsidize the ethanol
industry and mandate production? Think “green economy”, “sustainable development”, and “Agenda 21”!
Karen Ward, senior global economist at the world bank HSBC has said that “Even in the developed world I think we have very, very low wage growth, so people aren’t getting more in their pay packet to compensate them for food and energy and I think we could see social
unrest certainly in parts of the developed world and the UK as well. More and more we are seeing that some of these foodstuffs are actually substitutes for energy itself, particularly biofuels. So I think the energy markets are a significant contributor to these food price gains.”
Already, in the mid-west farmers are talking about another dust bowl similar to the one in the 1930′s. 30% of America’s farmland is irrigated using water from the Ogallala Aquifer. This underground freshwater lake, first tapped in 1911, will be dry in a few short years and it will take thousands of years of natural forces to replenish it. Once it is gone, harvests could vanish.
More than 850 million people around the world suffer from chronic hunger. According to the FAO 37 countries currently face shortfalls in food production and supplies.
DON’T THINK THAT AMERICA IS IMMUNE. With all the grain shortages facing the world, we are just one drought or flood away from a major worldwide
Comment is from a previous posting
Kay on March 24, 2011 @ 10:52 p.m.
WOW this is scary. Seems like Congress just can’t understand we need to stop burning up our food.