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Last Updated: Feb 26, 2008 - 6:02:31 PM |
On the 26th February 2008 both the BBC and The Guardian (London) both ran stories on the increases in wheat prices and the shortage of supplies.
The BBC reported that the Chicago Board of Trade price for wheat for delivery in March rose up the maximum of 90 cents allowed to US$11.99 a bushel, and on Monday prices for high protein spring wheat rose by almost 25% on the Minneapolis grain exchange to US$24 a bushel. This is over twice the price quoted in January this year.
Russia, Argentina and Kazakhstan have all imposed export restrictions on wheat.
Bad weather in the USA, China and Australia are part of the problem, but as noted in a previous article on this Site, Josette Sheeran Executive Director of the WFP said, that in
her opinion, the major drivers of high food prices "include [the] rise
in oil and energy prices which affect the entire value chain of food
production; the economic boom in nations such as India and China,
creating increased demand; climate and weather-related events, like
hurricanes and floods and drought, have made for some bad harvests in
particular regions; and the shift to increase biofuels production."
The Guardian reported that America's grain reserves have not been so low since the 1970s, the US is planning to "radically cut the amount" it gives to poor countries. In Egypt, the world's largest wheat importer, millions now receive food aid, there have been food riots in Morocco and Yemen, and Pakistan is now issuing ration cards for basic food stuffs.
India has banned the export of most forms of rice and food inflation in China is over 18% p.a. and China has introduced restrictions on some food exports.
The Guardian notes that rising consumption of meat, especially in China, has pushed up the demand for grain, meat production is a very inefficient use of food resources and this alone is a problem, in addition, as Josette Sheeran noted, the increased demand for biofuels from grains has also pushed up prices.
The FAO (UN Food and Agriculture Organization) stated in its February 2008 Report on Crop Prospects and the Food Situation, that the early prospects point to the possibility of a significant increase in world cereal production in 2008, but that the international prices of most cereals remain at record high levels and some are still increasing.
The FAO states that, "The tightening of the global cereal balance in 2007/08 has pushed up prices of all cereals. The most significant increase has been for wheat, for which the price index during the first 7 months of the current marketing year (July 2007 to January 2008), has averaged 74.5 percent above the average for 2006/07."
In Low-Income Food-Deficit Countries the FAO states that "Cereal imports of the LIFDCs as a group in 2007/08 are expected to decline by about 2 percent following a sharp reduction in shipments to India, (which in the previous year imported high volumes to increase stocks), and overall good harvests in most regions. However, imports will rise markedly in countries where crops were reduced by drought, including Morocco, Zimbabwe, Lesotho and Swaziland, that even in normal years rely heavily on imports to fulfil consumption needs. Elsewhere, substantially higher imports are needed in the Democratic Republic of Korea to avoid deterioration of the nutritional status of the population, as well as in Tajikistan and Iraq, which experienced significant drops in production. Increased imports are also forecast in Pakistan, to replenish stocks." The FAO also stresses that, "Despite the reduction in quantities to be imported by the LIFDCs as a group, their cereal import bill is projected at US$33 million, an increase of 35 percent for the second consecutive year, as a result of soaring international cereal prices and freight rates. A higher increase of 50 percent is estimated for the LIFDCs in Africa, which will be putting a heavy financial burden on several countries."
In my view one of the most worrying aspects of the FAO report is their statement that, "As a result of strong demand and a shortfall in overall cereal production in 2007 compared to utilization needs, world cereal stocks by the close of the seasons ending in 2008 are expected to fall to just 405 million tonnes, down 22 million tonnes, or 5 percent, from their already reduced level at the start of the season and the smallest since 1982. This latest forecast is also about 15 million tonnes less than was reported in December. At the current forecast levels, the ratio of world cereal stocks to utilization also declines by 1 percent from the previous season’s low to only 19.2 percent." The world only has a very small reserve against crop failure, extreme weather and drought, a failure of the Indian monsoon, or some similar event would create a food supply crisis.
Bangladesh, in 2007 saw losses of food production (in rice equivalent) due to a cyclone and floods is estimated at some 1.23 million tonnes, with more than half million tonnes in the four most severely affected districts; this is just one example of the impact of severe weather.
The poor, as Josette Sheeran, has said, may not be able to afford food, even when there are sufficient supplies, if prices rise further. The Guardian quotes Joachim von Braum, the head of the International Food Policy Research Institute "The fundamental cause [of high food prices] is
high income growth," said Joachim von Braun, the head of the
International Food Policy Research Institute. "I estimate this is half
the story. The biofuels is another 30%." The sharp growth in demand from a
new middle class in China and India for meat and other foods, which
were previously viewed as luxuries, is the consequence of income growth.
The BBC, 26 February 2008 - "Fresh records for price of wheat"
The Guardian (London), 26 February 2008 - "Feed the world? We are fighting a losing battle, UN admits"
The FAO Crop Prospects and Food Situation No 1, February 2008, http://www.fao.org/giews/
Josette Sheeran, WFP- see previous article on this Site,
© Copyright 2008 - Andrew Palmer
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