Official Government Wires
humanitarian news and analysis
a service of the UN Office for the Coordination of Humanitarian Affairs
FOOD: How bad is the crisis?
JOHANNESBURG, 16 August 2012 (IRIN) - Lower forecasts for 2012/13 maize
and soybeans from the US and wheat from Russia in the last few days
have been jumped on by the media as evidence that a food crisis
almost certainly on the way.
But a range of economists and food experts are also warning against
overreaction that could create panic, causing governments to apply
export controls that would restrict supplies of grains. This would
affect markets and push up prices still higher, they say.
"Increasingly pessimistic outlooks for the US corn and Russian wheat
crops this year have certainly driven prices up for both commodities,
with maize reaching a record high last week following the USDA [US
Department of Agriculture] announcement [that the maize crop was going
to be even smaller than expected]," said Christopher Barrett, a
professor of applied economics at Cornell University in the US.
The US, the world's largest producer of maize, is expected to produce
its smallest crop since 2006/07, the USDA said in its August forecast.
Prices for yellow maize, used mainly as feed for livestock, are already
above US$300 per tonne, and are now projected to exceed $350 per tonne
in the coming months and into 2013, the USDA said
. Maize prices
climbed by 23 percent in July alone, according to the UN's Food and
Agriculture Organisation (FAO).
'' For the time
being [FAO] , does not believe this situation will push the world into
yet another food crisis
Heat and dryness persisted during July in the spring wheat growing
areas of Kazakhstan and Russia, which are among the world's largest
producers and exporters, affecting the crop. With maize supplies down
and prices up, the USDA anticipates that demand for wheat will grow as
a number of countries opt to replace maize with wheat to feed animals.
In this scenario, the farm price (the value of the grain when it leaves
the farm) of wheat is expected to go up to around $330 per tonne,
revised from around $271 - the highest price projected by the USDA in
July. During the food price crisis in 2007/08, wheat hit more than $400
Aid agencies like Oxfam point out that "the time of cheap food has long
gone", and many people are already living in crisis. The rising prices
are "not some gentle monthly wake-up call - it's the same global alarm
that's been screaming at us since 2008" and has already sent so many
into hunger. "Without action, millions more people are in danger of
joining the billion who are already hungry," said Oxfam spokesperson
In an update on the food situation, IRIN attempts to assess the extent
of the crisis.
How deep in crisis?
"We (FAO) are concerned, as the maize situation in the US is much worse
than was anticipated, even as early as two weeks ago," said Abdolreza
Abbassian, secretary of the Intergovernmental Group on Grains (IGG) at
FAO. "This puts the global maize supplies in a very delicate situation.
Soybeans are also a concern, while the surge in wheat prices will
impose a heavy burden on poorer importing countries. FAO is monitoring
the situation closely but, for the time being, does not believe this
situation will push the world into yet another food crisis."
In response to IRIN via email, the USDA said, "Our August projections
in no way suggest a US or world wheat supply and demand situation like
that in 2007/08."
Cornell University's Barrett echoed the FAO, saying, "At this point.
[it seems] unlikely that market price increases will have global hunger
or poverty or social unrest impacts similar to those from 2007/08 or
He pointed out that "yellow maize - the sort grown in the US, and for
which prices have recently jumped - is less prominent as a food crop
than as livestock feed or as a source of ethanol for liquid fuel
supplies. So yellow maize price increases have much less impact on
hunger or poverty than, for example, equivalent increases in the prices
of wheat or rice, because those are the two main staple cereals in the
diets of the world's poor."
More on the crisis
Price shock hotspots
Price volatility -
causes and consequences
Food crisis in-depth
Barrett said wheat stocks "remain reasonably strong in spite of the
weak Russian season", as do rice stocks.
Triggers and signs
The economists list some possible triggers that could tip the situation
out of balance.
Trade restrictions: "The crisis is not here yet," said Shenggen Fan,
director of the International Food Policy Research Institute (IFPRI).
"But if droughts in India, Russia and a couple of other major food
producers become worse, we will see continued tightened food supply.
Trade restrictions by these countries will make the situation worse."
Barrett notes that "Ill-advised export bans by a major exporter" could
cause wheat prices to jump. "Rice harvests and stocks on hand remain
reasonably good, so those markets are calm. So long as those markets
remain reasonably calm, we should avoid major social problems of the
sort seen in 2008 and 2011."
The crises in 2007/08 and in 2010/11 were largely created by export
bans. In his take on the 2007/08 crisis, Brian Wright, professor of
agricultural and resource economics at the University of California,
Berkeley, said grain supplies then were sufficient "to meet food
demands without such great jumps in price, had exporters and importers
not panicked", leading to a cascade of export bans and taxes that cut
off importers from their usual suppliers.
"Such panics, which are perhaps inevitable in such circumstances,
constitute the real 'excess hoarding' that keeps stocks from the needy
in times of global stress on supplies."
Soybeans in the US: FAO's Abbassian said if soybean production in the
US were to be slashed even more in the coming months, then we could be
Food experts were hoping that US soybeans, also a popular livestock
feed, would withstand the drought better than maize, and so ease some
of the pressure on maize and subsequently wheat. Reflecting an
anticipated increase in the demand for soybeans, the USDA revised its
forecast for the price of soybean meal, used to feed animals, by almost
$100 more per metric tonne than its previous estimate in July.
Tighter soybean supplies will force the world to dip deeper into wheat
reserves to feed animals, pushing up prices and squeezing supplies of
wheat, the most widely consumed staple grain.
Biofuel production: IFPRI's Fan said the continued diversion of maize
to ethanol production was putting pressure on global supplies. About 40
percent of US maize is used to make ethanol.
USDA told IRIN that the maize used to produce ethanol was not being
wasted. "Nearly one-third of the volume of corn [maize] used to produce
ethanol is returned to the market as distillers' grains and other feed
by-products, so the entire 40 percent of corn used in ethanol
production doesn't disappear from feed supplies."
But Fan pointed out that "If 40 percent is used for biofuel production,
and one-third can be returned, we are still talking about 28 percent
net loss. The US is a large producer and a large exporter. This
[ethanol production] is the single most important factor in pushing
higher corn prices."
Futures trading: Following the last two food crises, many blamed higher
price volatility on the significant increase in the volume of
agricultural commodity futures traded on the Chicago Board of Trade.
A futures contract is an agreement between two parties to exchange a
specified quantity and quality of a commodity at a certain price on a
certain date in the future, according to the IFPRI's Hunger Index 2011.
Food experts like Wright say the futures market is more a symptom than
a cause of price volatility. "If all parties agree that prices are
stable, there will be little need for futures trading. But to argue
that increased futures trading is a cause, rather than a symptom, of
price increases, is to argue that speculation made food stocks increase
at a time when, in fact, the ratio of aggregate food grain stocks to
consumption was near historical minima," he told IRIN in 2011. [ Read
our discussion of Price volatility: Causes and consequences
Do the right thing
The next few months are going to be critical, with the livestock sector
likely to feel the impact first, said Concepci
UPI distributes certain third party submissions from official government news agencies, such as this article. Since UPI does not control the material included in these submissions, UPI does not guarantee the accuracy, integrity or quality of the material in such submissions, and UPI does not endorse any of the views or opinions expressed therein.