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FOOD: Another crisis coming?

lead photo
JOHANNESBURG, 12 July 2012 (IRIN) - In the Russian summer of 2010, the
worst drought recorded in 38 years
ubmited726163_0_art_file_2417333_m4l1yw.pdf> destroyed its wheat
crops, sending the world into another food-price crisis

, dumping millions into hunger and inflating food import bills in poor
countries. Two years later, the world is experiencing the consequences
of another eventful northern summer.

The worst drought in nearly 25 years in the US, the world's largest
producer of maize, has shrivelled most of its crop. Hot weather has
also affected crops in South America, Russia, Kazakhstan and China.
Maize and wheat prices have climbed in the past two weeks - the
question is, 'Are we headed for another crisis?'

What will this mean for food aid operations? With the help of the Food
and Agriculture Organization (FAO), the World Food Programme (WFP), and
food security experts, IRIN takes a closer look.

Are we headed for a crisis?

"No," say food security experts, but there is concern that staple
grains like maize and wheat could become less affordable for the poor,
and sharp fluctuations in prices or volatility could disrupt the
efforts of grain-importing poor countries to stay within their budgets.
"It is still early days - it might just rain in the US and the
situation could improve dramatically," said Abdolreza Abbassian,
secretary of the Intergovernmental Group on Grains (IGG) at FAO.

"Our stocks of cereals are relatively comfortable and the situation is
not comparable to 2010/11 [when wheat stocks were smaller] or to
2007/08 [when stocks of the main staple grains, wheat and maize, fell
to record lows]."

Prices might not spike as much, said Abbassian, after the US Department
of Agriculture (USDA)
=1046> took everyone by surprise with its monthly forecast on 11 July.
It showed an even smaller harvest than anticipated, with a projected
drop in demand taking stocks off export for use in biofuel production.
Following the announcement, the price of maize dropped by two percent,
but overall the prices of staples - maize, soybeans and wheat - remain
high. Maize and soybeans are traded globally as feed for livestock, but
when prices rise some buyers use wheat as a substitute, which affects
the price.

Christopher Barrett, a professor of applied economics at Cornell
University in the US, said in an email he believed the transmission of
any increase in maize and soybean prices to other main staples, such as
wheat or rice, and any impact on hunger and poverty would be "fairly

He said there were substitutes besides wheat for maize and soybeans.
"So. livestock producers' cost increases are less than the increased
market price of corn/soy, and meat/milk/egg prices don't increase as
much as producer costs - plus, those are commodities purchased
disproportionately by better-off consumers," he noted.

"While there is an impact, it's nothing like when rice or wheat prices
spike [as in 2008 and 2011] and much more directly impact poor
consumers. The big maize and soy consumer is China, which has ample
financial reserves and government control to effectively buffer local
consumers if needed, unlike the Philippines, Egypt or various African
countries. So while I'm watching the commodity markets' response to the
present extreme weather events in the Midwestern US, I don't anticipate
anything like 2008 or 2011 at this point."

Photo: FAO
A few countries produce the bulk of the world's staple cereals: Major
exporters' shares of global maize and wheat exports, 2008
Maximo Torero, director of the Markets, Trade and Institutions Division
at the International Food Policy Research Institute (IFPRI), said he
anticipated that a hike in maize prices would be felt more in major
importing countries in North Africa, Central America and Mexico.

But global prices do transmit to other major maize producers like South
Africa. Grain South Africa's senior economist Wessel Lemmer said the
price of yellow maize was up by 16 percent compared to 2011, and white
maize 28 percent higher. He said while maize stocks were comfortable,
but affordability would be an issue in the coming months.

How will it affect aid operations?

The price of maize and wheat will affect agencies like WFP, said
Torero. "But at this point I will not be alarmist, although cautious.
Remember, aid agencies not only provide raw staples, they provide
combinations of nutritious products also."

In a tough financial climate, the agency was already experiencing
problems raising funds for its operations, said WFP's Jane Howard, and
high prices did not help. "High and volatile food prices affect WFP in
two ways: it costs us more to purchase food for the hungry, and the
number of people needing food assistance increases. We have calculated
that a 10 percent increase in the price of the commodities in a typical
WFP food basket costs us an additional US$200 million a year to buy the
same amount of food."

Photo: FAO
A few countries produce the bulk of the world's staple grains: Major
exporters' shares of rice exports, 2008
Afghanistan is a good example of a country "where we are quite worried
about the prospect of lower funding levels, especially now that donor
countries are facing some very tough economic decisions at home. The
price of wheat is only a small part of the picture - and bear in mind
that although the average price of wheat flour in main city markets of
Afghanistan in June 2012 was still above pre-crisis levels (about 35
percent higher than from January to October 2007) - but lower than last
year by about 13 percent," Howard said.

Moreover, it's worth remembering that in addition to "hunger" per se,
chronic malnutrition is a significant issue in Afghanistan, with half
of all children under five being stunted. WFP has been planning its
defences against sudden price hikes since the 2007/08 crisis. It set up
a Forward Purchase Facility in 2008 to buy food in advance while market
prices are low, which has helped WFP minimize "the impact on our
budget", said Howard.

"This year our Executive Board doubled the amount available under the
Forward Purchase Facility, approving the allocation of up to $300
million. WFP's Executive Director, Ertharin Cousin, told a board
meeting on 4 June, 'The Forward Purchase Facility has served to greatly
enhance WFP's emergency response in places including the Horn of Africa
and the Sahel, helping country offices gain, on average, 56 days of
supply lead-time and maximizing every dollar used'," Howard noted.

Why are there spikes?

While you cannot do anything about the weather, economists and food
experts like Barrett and Steve Wiggins, development and agriculture
expert at the Overseas Development Institute, a UK-based think-tank,
said sharp fluctuations in prices are a symptom of a structural problem
of low stocks.

"It was pretty inevitable that maize prices would spike if there were a
whiff of a harvest failure, since stocks have never been rebuilt to
anything like a safe level," said Wiggins. "Without stocks, almost all
the adjustment will have to be by price. A fundamental underlying
factor here is the way that maize demand has risen over the last 5 to
10 years, repeatedly blindsiding most expectations. Hence, farmers have
been playing catch-up. This might have been the year when mass planting
and more intensive production would have finally caught up and allowed
stocks to grow, but the weather has intervened."

FAO's Abbassian said the problem was that the bulk of global production
of the world's main staple grains relied on a handful of countries. "If
climatic or any other exogenous shock affects either of these, then it
impacts the global prices and volatility."

Torero agreed. "We need to have big producers to be able to have a more
geographically diversified world portfolio of food. If not, we will
keep seeing the problems we have been seeing since 2007."

Wiggins said while he agreed that the world did "depend heavily on US
maize exports", the range of exporters is, I think, growing". He cited
the growth of Black Sea countries like Kazakhstan and Uzbekistan as
producers and exporters of major staples like wheat.

More on food crises
Why everything costs

How to fix a "broken"
supply system

Is there a crisis?

Price volatility -
causes and consequences

Sahel Crisis

crisis in-depth

question of dignity

These countries are located in a part of the world that is extremely
vulnerable to environmental shocks, Abbassian said. The Russian drought
in 2010 also affected wheat crops in these countries. This year, poor
rains have affected wheat yield in Russia, Kazakhstan and China.

What happened to the weather?

The planting season in the US began on a high note, with favourable
weather. Farmers planted more than 39 million hectares of maize, 5
percent more than in 2011, making it the highest acreage under maize in
the last 75 years. The third largest soybean crop ever was put in. All
planting was completed by May. "The farmers responded to the need to
build more stock and they diversified to protect themselves by planting
both maize and soybeans," said Abbassian.

Then record high temperatures and poor rainfall - less than 50 percent
of normal precipitation in the corn-belt, a group of Midwestern US
states where maize is traditionally grown - wilted most of the standing
maize. In the past few weeks, just when the plants needed moisture in
the crucial pollination phase, there was little or none. "Irrigating
this scale of farms is out of question - we would need to empty an
ocean," said Abbassian.

The USDA announced this week that only 48 percent of crops were in a
"good to excellent" condition, down from 72 percent at the beginning of
June. This is the worst good to excellent rating since 1988, said the
department, when 23 percent of crops were given a good to excellent
rating. The USDA cut its projections for maize production to a level
that is still the third largest on record, but the lowest since 2003.
The projections for soybeans have also been reduced by eight percent -
the lowest level since 2003.

Is it climate change?

As levels of man-made greenhouse gas emissions rise in the atmosphere,
temperatures are expected to rise and affect rainfall patterns. The
first six months of 2012 were the warmest in the US since recordkeeping
began in 1895, the US government's National Oceanic and Atmospheric
Administration (NOAA)
reported. Temperatures in maize-growing states like South Carolina and
Georgia went as high as 45 degrees Celsius in June, setting a possible
new record.


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[This report does not necessarily reflect the views of the United
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