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New food crisis looms

By MARTIN WALKER, UPI Editor Emeritus   |   April 6, 2009 at 11:41 AM   |   Comments

WASHINGTON, April 6 (UPI) -- We tend to forget that the worldwide plunge into recession last year was the result of three separate phenomena that combined to breed disaster. The financial crisis was joined by a food crisis and a fuel crisis as the prices of food and energy soared, triggering food riots across the world.

And now there are ominous signs of another food crisis in the making this year, spurred in part by the ongoing credit crunch that has made it difficult for farmers to get loans.

"I think the world would like to focus on one crisis at a time, but we really can't afford to," warned Josette Sheeran, executive director of the U.N. World Food Program. Food supplies are tight and prices still high, she said, and more people in poor countries are unable to afford what they need because of the recession.

"These are not separate crises. The food crisis and the financial one are linking and compounding," she noted, adding that food shortages often trigger political instability. "I'm really putting out the warning that we're in an era now where supplies are still very tight, very low and very expensive."

Alarm bells are starting to ring about another food crisis this summer. Last week's acreage report by the U.S. Department of Agriculture found that 7 million fewer acres were being planted for all crops. This came after the USDA's January report that noted that winter wheat acreage was down 7 percent.

This means lower output from the United States, the world's top food producer, at a time when world stocks are already low, and farmers are blaming the difficulty in getting credit and the high costs of key inputs like fertilizer.

Mother Nature is making things worse, with the worst drought in almost 70 years hitting northern China and devastating the winter wheat crop. More than 200 million acres in China's top six grain-producing provinces have been hit, and yields are down by as much as 40 percent.

The problem is not just hitting grains. With world soybean stocks 9 percent lower than they were this time last year, a further drought in Latin America is a new concern. Yields in southern Brazil, Paraguay and Argentina are also running at 40 percent of last year's levels. All this is triggering concern in the markets, where analysts are warning that price hikes are looming, and the speculators coming into the market could drive prices even higher.

"It's my opinion that producers feeding livestock need to protect against a possible sharp rise in corn prices," said Dennis Smith, a food-price specialist at Archer Financial Services. "This trade idea would also apply to a speculator looking to profit from a sharp move upward in the corn prices as well."

Smith also factors in the prospect of biofuels distorting the markets again, as they did last year when high oil prices triggered a demand for biofuels like ethanol, which sent crop prices higher. "What happens if crude oil prices continue to move higher and ethanol margins expand?" Smith asked.

Sheeran, whose World Food Program stands between the world's poor and starvation, said she will need about $6 billion this year for food aid, which feeds about 100 million of the world's poorest people in 77 countries. That is slightly more than she raised last year, when food riots erupted across Asia and the Middle East. As of March, donor countries had pledged less than 10 percent of the sums required, or $453 million, mostly thanks to $172 million from the United States and $129 million from Japan.

The one relatively bright spot is in rice, where stocks are relatively high. But concern is rising across Asia. Arthur Yap, agriculture secretary for the Philippines, has warned the United Nations that he fears his country will not be able to secure enough food this year. And Ralph Hautman, the Asia Pacific marketing and global finance officer for the Food and Agriculture Organization, warned last week that the credit crunch is pressuring farmers to reduce the amount of land they cultivate.

"If farmers or agriculture producers have less access to credit, they are less likely to buy a lot of new seeds and fertilizers, and they're also less likely to expand their production areas," Hautman said. "Then there would be less agriculture production. This is the concern. The lower production of food crops caused by the lower availability of credit may lead to lower food stocks and shortages."

This is precisely what has happened in Brazil, where farmers encouraged by last year's high food prices borrowed money to put more acreage under cultivation and buy new farming equipment, only to face bankruptcy when the squeezed banks called in the loans and foreclosed on their farms and tractors.

Part of the problem is underproduction in some parts of the world, where for various reasons of national planning and priorities, farmers are not free to respond to market signals. This is particularly acute in Russia; analysts at the European Bank for Reconstruction and Development noted that 16 percent of the world's arable land is in Russia, but it produces only 6 percent of the world's food because of a shortage of both public and private investment.

© 2009 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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