Post by Sparky on Apr 29, 2008 22:44:04 GMT -8
whatilearnd.com/post/33179926
“A silent tsunami which knows no borders is sweeping the world,” says the head of the UN World Food Program. In Haiti, protesters shouting “we’re hungry” forced the prime minister to resign. Cameroon saw 24 deaths during hunger riots. Egypt’s president has ordered the army to bake bread. Hoarding rice in the Philippines is now punishable by life imprisonment. Riots in Côte d’Ivoire have caused the government to postpone elections. The World Bank believes 33 countries are in danger of being destabilized and food inflation will push over 100 million people into poverty. And the price of your box of wheat thins rose by 15 cents. Here are some reasons why (in no particular order)…
Population growth. More people = greater demand for food. Supply lags demand because it takes a season to grow more food, and farmers can’t necessarily just respond to the market because of this (if they grow more & demands declines, they lose. This is especially true for farmers in emerging markets).
China and India have started to eat meat. Increasing affluence in emerging economies means more people can afford more food (including meat). It takes 700 calories worth of animal feed to produce a 100-calorie piece of beef, so the demand for grains has increased.
Biofuels. The government subsidy of ethanol, which converts cereals (namely corn) into fuel, has spurred the demand for corn. The European Union will soon be implementing its own biofuels target, which will only aggravate this further. It takes 528 pounds of corn to fill the tank of one SUV. The same amount could feed one person for a year. whatilearnd.com/post/20622923
Oil oil oil. Farming is highly energy intensive (producing fertilizer, running tractors, etc), and becomes more expensive as the price of oil increases. Transporting food from farms to consumers is extremely energy intensive and costs more as oil (and gas) prices increase.
The commodities market. It’s booming and people are investing. After the subprime crisis, speculators and hedge funds have switched from investing in high-risk-of-default securities to investing in commodities, or “stores of value.” This investment pushes the prices up further (more people want to invest b/c they see others making profits. When more people invest, prices increase, so more people invest, etc).
Drought. China, Indochina and Australia have all experienced droughts recently. Australia has seen an epic 3-year drought causing its total rice capacity to decline by one third. It supplies rice to countries like Cameroon, Egypt, Ethiopia, Haiti, Indonesia, Italy, Ivory Coast, Mauritania, the Philippines, Thailand, Uzbekistan and Yemen, which have seen violent protests over famine this year. Countries like Senegal and Haiti each import four-fifths of their rice.
The chardonnay effect. Because of this drought in Australia, farmers received only 1/8 of the water they usually receive from the government (Australia’s water is allocated by the government, and the water rights whatilearnd.com/post/21132863 can be traded thereafter). Thus, many farmers are abandoning rice, which requires large amounts of water, to plant less water-intensive crops like wheat or wine grapes. Some farmers have even sold their fields or their water rights to grape growers. Grape growers are thriving because it is more profitable to grow grapes, even with the increase in the price of rice. Wine grapes produce a pretax profit of $2,400 an acre where as rice produces $240 an acre. You can read a bit more about it here: www.iht.com/articles/2008/04/17/business/17warm.php We have seen this effect with other crops: as prices of corn rose, farmers abandoned their crops (including rice & wheat) to turn to corn or cattle raising, causing a decline in supply and thus higher prices of those staples.
Genetically modified crops. GM crops produce 10% less food than its conventional equivalent (per a new study of genetically modified soya). 85% of the US soybean crop and 45% of our corn crop is genetically modified. www.independent.co.uk/environment/green-living/exposed-the-great-gm-crops-myth-812179.html
Trade policies. Many countries have banned or curbed food exports to ensure domestic availability. This so called “starve-my-neighbor” policy distorts the flow of commodities across borders and exacerbates the food shortage in the world market.