Tuesday, February 15, 2011

Food, civil unrest and anarchy

Let me have men about me that are fat;
Sleek-headed men, and such as sleep o' nights.

Yond Cassius has a lean and hungry look;
He thinks too much: such men are dangerous.

Julius Caesar

Food and food security has come up again recently as a serious topic since the instability in the middle east (see also the food links at the bottom of the Feed Me page).  Marketwatch takes an investor focused look at rising food prices:

As investors nervously watch the situation in Egypt, one theme has emerged that seems to underpin the protests there and elsewhere: rising food prices.

Last month, the United Nations Food and Agriculture Organization reported that its index of farm commodity prices reached a new record. Other commodity prices, notably fuel, are also rising. The increased commodity costs have contributed to the overthrow of the Tunisian government and civil unrest in Ghana, Algeria, Pakistan, Yemen and elsewhere. In India, people have taken to the streets in protest over rising onion prices.

With the turmoil in Tunisia and Egypt, some believe that governments in troubled neighborhoods may start snapping up more food to try and ensure supplies for their disgruntled masses, which could add even more to food price pressures. In sum, while precious metals and energy tend to dominate headlines, agricultural commodities may be even more strongly positioned to gain ground in this season of political uncertainty.

The spike in food prices present investors with three questions to consider: What kind of inflationary impact will the price gains have? How will rising food prices affect the political risk equation in emerging markets? And is it time to get long or go longer agricultural commodities?

The lack of empathy is noteworthy, what ever happened to emotional intelligence?

J.P. Morgan says that even in the face of recent food price gains, they expect prices to move higher still over the next few months, due to low inventories and slack production. The brutal weather of recent weeks, ranging from cyclones and floods in Australia to uncommonly cold weather in the Southern U.S. and Mexico, has made the agricultural climate even rougher.

Looking at futures markets, most key food commodities trade with relatively near-term "backwardation," meaning prices in future months are lower than they are today. In the case of corn and soybeans, investors are betting that prices will start to fall this spring.

The one exception: wheat. Those futures prices are "contango" in the near term, meaning futures prices out through the next several months are higher than today.

The Sydney Morning Herald has a story from the New York Times about the drought threatening Chinas grain supply.

When China goes hungry, the world shakes

Keith Bradsher

A SEVERE drought is threatening the wheat crop in China, the world's largest wheat producer, resulting in shortages of drinking water for people and livestock. China has been essentially self-sufficient in grain for decades, for national security reasons.

''China's grain situation is critical to the rest of the world - if they are forced to go out on the market to procure adequate supplies for their population, it could send huge shockwaves through the world's grain markets,'' said Robert Zeigler, the director-general of the International Rice Research Institute in Los Banos, Philippines.

[The] country's major agricultural regions were facing their worst drought in 60 years… and … Shandong province, a cornerstone of Chinese grain production, was bracing for its worst drought in 200 years unless substantial precipitation came by the end of this month.

With $2.85 trillion in foreign exchange reserves, China has ample buying power to prevent any serious food shortages.  ''They can buy whatever they need to buy, and they can outbid anyone,'' Mr Zeigler said.

The Food and Agriculture Organisation, in its ''special alert'', said the drought's effects had been somewhat tempered by government irrigation projects and relatively few days of sub-zero temperatures. The agency went on to caution that extreme cold, with temperatures of minus 18 degrees, could have ''devastating'' effects.

But China … is enormously important to the world's food supply, especially if something goes wrong.

The heat wave in Russia … combined with floods in Australia … has drawn worldwide attention to the international wheat market, because Russia and Australia have historically been big exporters.

But China's wheat industry has existed in almost total isolation, with virtually no exports or imports, until last year, when modest imports began. Yet it is huge, accounting for one-sixth of global wheat output.

Reuters has a report linking food supply issues to the Indonesian governments plan to buy additional reserves.

Indonesia move adds to worries about food security

Neil Chatterjee
  • Global food prices at record high
  • China plans measures to boost grains output
  • Australia sugar group assesses cyclone damage
  • U.S. to issue report Wednesday on global grains supply

Indonesia ordered a government agency on Wednesday to boost stocks by a third in the latest sign that governments concerned about rising food prices and dwindling supplies are rushing into the market and could drive inflation even higher.

Global food prices have climbed to record highs on shrinking supplies of wheat, corn, soybean and oilseeds. While rice has been less of a worry thanks to ample supplies in the top two exporters, Thailand and Vietnam, traders said other Asian governments may soon seek to boost rice stocks too.

"Maintaining a stable grain output increase has a very important meaning to managing inflation expectations, stabilizing general consumer prices, and realising rapid and stable economic growth as well as social harmony and stability," the report said, citing a regular state council meeting held by Premier Wen Jiabao on Wednesday.

The latest monthly grains report from the U.S. government threatened to further stoke concerns over crops being increasingly used for fuel. The U.S. Department of Agriculture slashed its forecast for corn stockpiles 9 percent, projecting the tightest supply since the Great Depression as a record amount of the crop is used to make ethanol.

Bangladesh said it was buying 200,000 tonnes of parboiled rice from Thailand in their first government-to-government deal for the grain.

The Philippines, however, held back on importing more despite a recommendation by a government panel to build stocks above a 1 million tonne target.

Traders also warned of a remote chance the top two exporters, facing food inflation pressures as well, may choose to keep more supplies at home.

Indonesia surprised markets last month by buying nearly five times as much rice as expected, then suspended rice import duties, signalling it could look to stockpile more.

And finally The Huffington Post has a look at some scholarly articles on the historical consequences of climate variability and food scarcity

Avoiding a Global Food Fight

Cary Fowler

[R]esearchers examined the historic links between climate change and incidents of war in Europe and Asia. Going back a millennium, they uncovered a "strikingly high" correlation between temperature variation and the number of wars.

Climate change has "significant direct effects on land-carrying capacity" which in turn "affects the food supply per capita." In their words, "the paths to those disasters operated through a reduction in agricultural production." As one might guess, these researchers, working from institutions in China, the US, and UK, found that the highest correlation between climate change and war occurred in arid regions…

[Reseach] from Berkeley, NYU, Harvard and Stanford focused on Africa. {There was a } "strong historical linkages between civil war and temperature... with warmer years leading to significant increases in the likelihood of war."

"When combined with climate model projections of future temperature trends, this historical response to temperature suggests a roughly 54% increase in armed conflict incidence by 2030, or an additional 393,000 battle deaths if future wars are as deadly as recent wars."

In this context it is hardly surprising that the CIA is establishing a new Center for the Study of Climate Change, or that the Pentagon now includes climate change among the security threats it assesses in its quadrennial defense reviews.

[In] 2007-8, when the price of rice surged 200% and wheat and maize rose by more than 100%. Across the world, riots erupted and at least one government fell as a result. This year food prices have returned to record levels. The government of Tunisia has fallen, and Egypt is on the brink1. In both cases, discontent over food issues has been part of the mix.

[T]wo UK government departments are warning that global warming may cut India's farm output by a quarter. Similar decreases in production of major staples have been predicted for Africa in the pages of the journal Science.

[F]ailure to sever the link between climate change and war represents a breach of security and a threat to peace. Failure to take easy steps to adapt agriculture to climate change is a failure to react to an avoidable threat. Strategically, and morally, unforgivable.

An unmistakable message is coming from our early warning systems. If we ever intend to stop food fights, we'll have to conserve crop diversity, not just throw it at each other.

Other links on this topic.

Chinese hoarding drives up food prices, economist warns - National Post

Why Biofuels Help Push Up World Food Prices – TIME

Global food crisis - Tehran Times

Drought in China and Civil Unrest Grow Fears of an Impending Global Food Crisis - US News Source

Tunisia and Climate Change: What it means for Southeast Asia - Eurasia Review


1 This article was published before the President of Egypt resigned.

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