The Cost of Hunger: Drought Only One Factor Behind High Food Prices

In the US, the Midwest is suffering through one of the worst droughts in decades – Published on Spiegel Online International, by CLEMENS HÖGES, ALEXANDER JUNG, MALTE LAUB, MICHAELA SCHIESSL and GERALD TRAUFETTER, August 21, 2012. (Photo GalleryTranslated from the German by Christopher Sultan).

The severe drought in the US has been blamed the rising prices of agricultural commodities. But that is only part of the story: Biofuels, financial speculation and changing dietary habits are also playing a role. The global food supply faces pressure from all sides … //

… A Key Issue:

  • Sudden spikes in the prices of wheat, soybeans and corn threaten the wellbeing of every individual. Economists warn of “agflation,” or inflation triggered by a rise in the price of agricultural products. Poor nations, however, are disproportionately affected because people there spend a larger share of their income on food. But consumers in the industrialized world will also feel the effects.
  • Mills, forced to pay high prices for wheat and other grains used in making bread, pass the added cost on to bakers. The bakers’ suppliers also charge more for ingredients like nuts, poppy seeds and margarine, says Amin Werner, head of the German Bakers’ Association. “This can’t be ignored, which is why consumers will also notice.”
  • The G-20 has also taken notice, and plans to hold a meeting this autumn to address the crisis. First and foremost, the group of the world’s strongest economies and developing nations wants to prevent countries from taking unilateral action. Two years ago, Russia temporarily suspended wheat exports, which only drove prices up even further. This time, countries like Argentina and Brazil could follow a similar path and curb their soybean exports, fears Bonn agriculture professor Ernst Berg. This would decrease supply even further. “The crisis will only get worse,” Berg predicts.
  • Securing the food supply is becoming a key issue on the international agenda, now that a global battle for agricultural commodities has erupted. “Food is the new oil,” says Lester Brown, founder of the Washington-based Earth Policy Institute, “and land is the new gold.” Politicians and citizens are worried about how the food supply can be guaranteed in the future — and at what price. Four factors play a critical role here:

CLIMATE CHANGE IS DECIMATING CROPS:

  • Many climatologists predict that in a warming world, heat waves like the one in the United States this year will become more frequent and more severe. In a new study, agricultural economists at New York’s Columbia University predict that, if the climate models turn out to be true, extreme heat could reduce crop yields in the United States by about 30 percent.
  • The world must be prepared for the consequences of climate change varying greatly by region, with yields shrinking in some areas and growing in others. Regions of Scandinavia that were once cold and barren will likely turn into breadbaskets. The losers will include current centers of agricultural productivity like southern Spain. The vegetation belt in Africa will also shift, with the Sahara becoming greener and severe droughts becoming more common in the south.

MORE BIOFUEL MEANS LESS FOOD: … //

… SPECULATORS DRIVE UP PRICES OF AGRICULTURAL COMMODITIES:

  • Since the beginning of the agricultural crisis in 2008, there have been price surges that cannot be explained by normal factors. Market prices for rice, for example, sometimes shoot up by 30 percent in a single day.
  • Such movement is likely the result of financial market speculation. Investors, especially investment banks and pension funds, don’t trade in real goods. They have no interest in physically owning corn, soybeans or wheat. By entering into futures contracts, they are merely speculating on changes in the prices of food commodities. Trading in agricultural commodity futures almost tripled between June and July.
  • Growing demand causes futures prices to rise, which ultimately affects the real market — which is precisely the problem. Many studies show that futures contracts affect prices on real markets, and experts only disagree on how large the effect is.
  • Criticism of making money in a way that ultimately exacerbates hunger has convinced a few banks to rethink their approach. Three German banks, Commerzbank, Deka-Bank and Landesbank Baden-Württemberg have decided to stop engaging in speculation related to agricultural commodities. But according to aid organization Oxfam, the big players are not following suit, including German insurance giant Allianz and Deutsche Bank, which have €6.2 billion and €4.6 billion, respectively, invested in food commodities speculation.
  • To undermine speculation, experts propose the establishment of a sort of central bank for grain. Under the plan, the important agricultural countries would establish a joint reserve. In the event of sudden price spikes, they would be able to throw grain onto the market to bring down prices and force speculators out of the business.

NEW CONSUMPTION PATTERNS EXACERBATE SCARCITY … //

… (full long text).

Links:

The Only Thing More Horrifying, Grotesque and Depressing Than THE FUTURE, on Dissident Voice, by Adam Engel, August 21, 2012;

The Privatization of Creativity – The Ruse of Creative Capitalism, on Dissident Voice, by Max Haiven, May 9, 2012.

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