Warfare: Food Supply/Access

[Watcher In The Middle]

Battlefield for "The Next War", perhaps?

Forget oil, the new global crisis is food
By Alia McMullen, Financial Post Published: Friday, January 04, 2008

BMO strategist Donald Coxe warns credit crunch and soaring oil prices will pale in comparison to looming catastrophe

A new crisis is emerging, a global food catastrophe that will reach further and be more crippling than anything the world has ever seen. The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire, Donald Coxe, global portfolio strategist at BMO Financial Group said at the Empire Club's 14th annual investment outlook in Toronto on Thursday.

"It's not a matter of if, but when," he warned investors. "It's going to hit this year hard."

Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India as well as heavy demand from the biofuels industry.

"The greatest challenge to the world is not US$100 oil; it's getting enough food so that the new middle class can eat the way our middle class does, and that means we've got to expand food output dramatically," he said.

The impact of tighter food supply is already evident in raw food prices, which have risen 22% in the past year.

Article

Wheat at $9.45 a Bu.; Beans (Jan., 2008 Contract) at around $11.50 a Bu.; and Corn at $4.66 a Bu. in January is more than a little bit scary.

The thought/principle of using food supplies as a weapon by the US has always been firmly denounced by politicians of all stripes here in the US in the past (as far back as I can remember). Occasionally, some pol would slip up, and then would get firmly, but throughly trashed from all quarters for echoing the unthinkable. And deservedly so.

But do those same rules still apply in today's world? - particularly with oil pricing where it is, where there's more than a little feeling in the general public that OPEC member nations are not only gouging us for oil, but are also baiting us at every turn.

I'm in no way advocating this approach, but I could see rapidly growing support for economic warfare through restrictions on food supplies (particularly exports) developing here in the US.

Thoughts and Comments appreciated.

[Jedburgh]

The linked article is a bit alarmist in its tone, although the basic data it's built on is pretty much on target. However, for a more cogent and reasoned look at the issue I recommend a read of this brief from the 6 Dec 07 issue of The Economist:

Food Prices: Cheap No More

....According to the World Bank, 3 billion people live in rural areas in developing countries, of whom 2.5 billion are involved in farming. That 3 billion includes three-quarters of the world's poorest people. So in principle the poor overall should gain from higher farm incomes. In practice many will not. There are large numbers of people who lose more from higher food bills than they gain from higher farm incomes. Exactly how many varies widely from place to place.

Among the losers from higher food prices are big importers. Japan, Mexico and Saudi Arabia will have to spend more to buy their food. Perhaps they can afford it. More worryingly, some of the poorest places in Asia (Bangladesh and Nepal) and Africa (Benin and Niger) also face higher food bills. Developing countries as a whole will spend over $50 billion importing cereals this year, 10% more than last.

Rising prices will also hurt the most vulnerable of all. The World Food Programme, the main provider of emergency food aid, says the cost of its operations has increased by more than half in the past five years and will rise by another third in the next two. Food-aid flows have fallen to their lowest level since 1973.

In every country, the least well-off consumers are hardest hit when food prices rise. This is true in rich and poor countries alike but the scale in the latter is altogether different. As Gary Becker, a Nobel economics laureate at the University of Chicago, points out, if food prices rise by one-third, they will reduce living standards in rich countries by about 3%, but in very poor ones by over 20%.

Not all consumers in poor countries are equally vulnerable. The food of the poor in the Andes, for example, is potatoes; in Ethiopia, teff: neither is traded much across borders, so producers and consumers are less affected by rising world prices. As the World Bank's annual World Development Report shows, the number of urban consumers varies from over half the total number of poor in Bolivia, to about a quarter in Zambia and Ethiopia, to less than a tenth in Vietnam and Cambodia.

But overall, enormous numbers of the poor—both urban and landless labourers—are net buyers of food, not net sellers. They have already been hard hit: witness the riots that took place in Mexico over tortilla prices earlier this year. According to IFPRI, the expansion of ethanol and other biofuels could reduce calorie intake by another 4-8% in Africa and 2-5% in Asia by 2020. For some countries, such as Afghanistan and Nigeria, which are only just above subsistence levels, such a fall in living standards could be catastrophic.....

[LawVol]

I'm not so sure this argument is as viable as it appears at first glance. The author points mostly to the rise in corn prices since it is linked to many other food staples. While he correctly points out that the cost increase is due to the rise in demand of corn for ethenol products, he appears to ignore the basic market process. The rise in price is due to the rise in demand: as demand increases prices goes up and as demand decreases, prices go down. Right now, we've had a spike in demand for corn that does not correspond with production. I would think that if the demand continues, corn growers will increase their production thereby decreasing the overall price.

As for using food as a weapon, I see international law concerns. Although food is certainly used by military forces, and international law does account for dual use when it comes to targeting (e.g. a bridge could be a lawful target since it allows an enemy to deploy forces despite the fact it is also used by civilians to take food to market), I doubt it would go this far. I don't really see a difference between carpet bombing a city and freezing food shipments to that city. The end result is the same: the targeting of the population as a whole by lethal means. But maybe I'm wrong. I'd be willing to consider arguments to the contrary.

[Penta]

You aren't, LawVol. That would be -classic- collective punishment.

Blowing up the enemy's shipping, thereby also happening to reduce his ability to bring food in, is one thing.

Specifically denying food to civilians? That's a war crime, IMHO.

That said: We're hearing a lot about higher crop prices. However, for reference...What do normal crop prices for the quoted crops look like?

[Watcher In The Middle]

Originally posted by LawVol:

...The rise in price is due to the rise in demand: as demand increases prices goes up and as demand decreases, prices go down. Right now, we've had a spike in demand for corn that does not correspond with production. I would think that if the demand continues, corn growers will increase their production thereby decreasing the overall price....

...that farmers are going to be able to vastly increase even more corn production. It's already happened (for the 2007 planting season; see below), and like the article points out, we've got corn running at over $4.50 a Bu. And nobody grows more corn than the US.

Just some numbers:
1) For 2006, the US grew 10.535 billion bushels of corn. The 2006 crop ended up 210 million bushels smaller than the November 2006 forecast and 579 million smaller than the September 2006 forecast.
2) In September, 2007, The USDA forecasted the 2007 U.S. corn crop at 13.308 billion bushels, 254 million (1.9 percent) larger than the August forecast and 2.773 billion (26.3 percent) larger than the 2006 crop.
3) Final 2007 crop numbers will be issued in January, 2008.

A good friend who farms 2300+ acres in central IL says that in the $3.55 to $3.75 per Bu. price range for corn, farmers start to make a pretty good buck. Costs vary by region, but the land they farm is highly productive, so that's their experience this year.

Also, one other point made to me is that the Congress just upped the Renewable Fuel Standard (recently passed 2007 Energy bill) to use a min. of 36 billion gal. of "Biofuels" by 2022, which is more than a 500% increase of the 2005 Standards. "Biofuels" = Ethanol, which here in the US, comes almost exclusively from corn. So there's going to be even higher demand, mandated Congressionally.

September, 2007 exports of U.S. corn during the current marketing year were projected at 2.25 billion bushels, 130 million larger than exports during the 2006-07 marketing year and the largest in 18 years. Info. From a Univ. of IL Cooperative Extension Researcher

The lead article posted has an obvious slant to it (that's their business, so they got to push it hard), but the Economist article reminds me of a "Whistling past the graveyard" type of article, which is akin to saying "Well, if everything goes perfectly, we'll all be fine". Doesn't mean it's going to happen that way.

[selil]

Don't forget food needs water. Water is the short pole.

[Watcher In The Middle]

Originally posted by selil:

Don't forget food needs water. Water is the short pole.

why (in part) the wheat harvest has been substandard the last two years - drought. But the corn harvest (beans, also) has been good the last 2 years, because no drought.

My concern is that we are already seeing nations turn off the export tap to maintain the stability of their domestic food supply.

Imagine what would happen if our 2008 harvest doesn't grow at the same level (or anticipated levels) as for the prior two years, but demands continues to increase. That happens, we got problems right here, right now. You could easily get a 20% rise in base grain prices here in the US, and there's not a pol out there who could withstand the homegrown political pressure they'd be dealing with to cut back/limit food exports. Anything to get those food prices under control.

Look at what Argentina does (WSJ, Pg. C3, 12.26.2007) on grain exports. They limit exports to a percent of a base year (for beef, it's 2005), and only 70% of that year's exports. On grains, they add on a "per Bu." export tax of between 27.5% up to 35%.

Let's not kid ourselves - All the pols are looking for an extra source of cash to fund all their favorite programs - what better way to (a) raise additional cash to fund these programs by (b) taxing food exports, which people have to buy (c) with the end result of maintaining the stability of our domestic food prices.

For example, Argentina raised the export tax on soybeans from 27.5% to 35% in December, 2007, when the daily settlement price on the continuous front-month contracts went from around $8.70 a Bu. (09.01.2007) to $11.80 a Bu. (12.24.2007) for soybeans.

Anybody who thinks our pols aren't paying attention to all the additional rivers of cash that Argentina's government is bringing in with these export tariffs is crazy.

But think about what the consequences would be in the international relations arena if all the sudden the US starts treating food exports the same way as OPEC treats oil.

Thoughts?

[selil]

Anybody who thinks our pols aren't paying attention to all the additional rivers of cash that Argentina's government is bringing in with these export tariffs is crazy.

But think about what the consequences would be in the international relations arena if all the sudden the US starts treating food exports the same way as OPEC treats oil.

Thoughts?

Actually I was talking to a DHS planner about what would happen with an unknown "blight" of corn or wheat. An unexpected genetic drift in hybrids or a unknown/unexpected insect outbreak could wipe out harvests unlike anything in the past (it makes ag people nuts). I'm outside my area of expertise but I believe the issue is called something like uni-crops or something like that. The normal bio-diversity of crops isn't being done like it was in the past and the result is a larger volume of the harvest is effected by any single event since "everybody" is growing "everything" alike. The hybrid nature of some crops and a lack of multiple crops seems to be the issue.

Then there is salination of soil due to improper irrigation.

[Norfolk]

But think about what the consequences would be in the international relations arena if all the sudden the US starts treating food exports the same way as OPEC treats oil.

Thoughts?

An intriguing point, to be sure, and not absolutely out of the realm of possibility. It would be very interesting to see what the great food staples conglomerates (Cargill, Archer-Daniels Midland, etc.) would make of such a development.

As to genetic diversity in food staples crops, of course there's the little matter of the modern banana possibly going extinct within a generation or so due to genetic manipulation by humans. And many Third World people rely on bananas like we rely on grains.

[Jedburgh]

A couple of recent pieces from the Chatham House, focusing on the potential future impact to the UK:

A Jan 08 Briefing Paper: UK Food Supply: Storm Clouds on the Horizon?

Summary Points

 In an environment of increasing uncertainty, the ability of global food production to meet rising demand is becoming recognized as an issue of fundamental importance. Constraints on the availability of energy, water and land are identified as being of particular significance.

 The Chatham House Food Supply Project is studying the effects of global trends on the networks that supply two staples, wheat and dairy products, to the UK market. The issues addressed in this paper featured in a series of interviews and discussions undertaken in 2007 with leading players within and around Britain’s wheat and dairy supply networks. They are presented in six sections: global demand, global supply, rises in commodity prices, supply network opinion on implications for the EU/UK food system, scenario development and conclusions.

 These preliminary findings will influence the development of four global scenarios that could shape the future of the UK’s food supply. Some of the interactions involved would create only a limited degree of change in Britain’s food supply arrangements; others could indicate a shift to a quite different UK supply dynamic.

 Britain as a society will need to make the right policy choices if it is to secure the kind of food supply that best supports its interests.

From the Feb 08 issue of CH's The World Today:

Britain's Food Supply: Lunch as a Strategic Issue

.....The dominant conventional view is that, as a rich society, Britain will always be able to buy the food it needs on world markets. But much will depend on the reaction of our competitors and trading partners to the emerging challenges. Could we identify new sources of supply if it became necessary? What would be the geo-political implications, particularly if faced by competitors who have already made food supply a strategic requirement and who may follow a foreign policy free of values regarded as essential for the west’s trade and development stance?

A fundamental change in the production and consumption of the last half-century may be in prospect. Food supply is once again on track to become a focus of international, and national, debate – and an issue of increasing political significance.

[Watcher In The Middle]

...rice also. WSJ article dated 12.15-16.2007 (Pg. B1).

Unfortunately the article is not available to non-subscribers.

Then there's this (from a different source):

The Russian government’s decree imposing a 40 percent export duty on wheat, meslin (wheat and rye mixed), and barley, but not less than EUR 0.105 per 1kg, will take effect on January 29, 2008. The document was signed by Prime Minister Viktor Zubkov on December 28. The measure, which almost quadruples Russia’s protective duties on grain exports, will apply until April 30, 2008.

On October 8, the Russian government decided to introduce export duties on wheat and barley, at the same time lowering import duties on milk, butter, cheese and sour cream. The export duty on grain was set at 10 percent of contract price but not less than EUR 22 per tonne, and at 30 percent for barley, but not less than EUR 70 per tonne.

Link is Here

[kehenry1]

I find these tariffs interesting since the probably outcome of reducing food stuffs from the global market to retain internally is -ta-da- sky rocketing prices.

But, just in case, I'm going to start investing in wheat futures. LOL

[JJackson]

More on rice shortages
Thais hold key to rice shortages
http://news.bbc.co.uk/2/hi/asia-pacific/7222043.stm

selil I think the term you were looking for is mono-culture and in the perpetual war between pathogens and our food crops the pathogens will always adapt faster (this is an inevitable result of the differences in their evolutionary genetic strategy). Loss of bio-diversity is a major long term problem and concern regarding pandemics not misplaced. The widespread use of infertile hybrids and genetic modification of food species giving improved yields will aggravate the problem as they promote a further curtailing in genetic diversity (only in the food crop not in the pathogen).

[selil]

More on rice shortages
Thais hold key to rice shortages
http://news.bbc.co.uk/2/hi/asia-pacific/7222043.stm

selil I think the term you were looking for is mono-culture and in the perpetual war between pathogens and our food crops the pathogens will always adapt faster (this is an inevitable result of the differences in their evolutionary genetic strategy). Loss of bio-diversity is a major long term problem and concern regarding pandemics not misplaced. The widespread use of infertile hybrids and genetic modification of food species giving improved yields will aggravate the problem as they promote a further curtailing in genetic diversity (only in the food crop not in the pathogen).

Thank JJackson... I believe mono-culture is exactly what they called it. The briefing I got on the topic and a subsequent video I was shown about Canada wheat really brought home the risks. I'd seen a few years back some stuff about pork and the risks of infection, but the feed crops really make me worry.

[JJackson]

The pig is very topical, in a pandemic context, at the moment. The HP AI A/H5N1 (AKA Bird Flu) needs to accumulate a few genetic changes in its RNA sequence to adapt to man. We do not really know what most of these are but one that we do know is a modification to the H (in H5N1). An area on the Hemagglutinin called the RBS binds to a sugar on the host cell surface before it can enter the cell. There is a small configurational difference between the versions of the sugar the virus binds in birds and humans, this makes it difficult for avian flus to infect people. The bad news – for us and the pigs - is that pigs have both isomers and can catch both human and bird flus. They can then act as mixing vessel recombining and reassorting the genetic material to create new flu strains.

[Jedburgh]

Don't forget food needs water. Water is the short pole.

RIA Novosti, 15 Mar 08: EU warns water shortage in Central Asia could spark conflicts

The severe impact of climate change in Central Asia is causing water and food shortages that could lead to regional conflicts, EU foreign policy chief Javier Solana warned.

Solana delivered a climate change and security report from the High Representative and the European Commission to leaders at the European Union summit held on Thursday and Friday.

"An increasing shortage of water, which is both a key resource for agriculture and a strategic resource for electricity generation, is already noticeable" in Central Asia, the report said.....

[Jedburgh]

EIU Brief, 25 Mar 08: Egypt the pressure cooker: Soaring food prices lead to widespread protests

.....The government has sought to address the discontent in several ways. It is especially attempting to improve subsidy provision, separating the production and sale of subsidised bread—the main element in the Egyptian diet—in order to reduce corruption. Families were allowed to add children to their ration cards in February for the first time since 1988 (increasing the total number of beneficiaries from 40m to an estimated 55m). Nevertheless, as rising wheat prices force more and more people to rely on subsidised bread, the queues are lengthening and supplies are coming under strain. Similar problems have also arisen regarding diesel fuel, which is used to power machinery and farm equipment. Shortages have led to outbreaks of fights at petrol stations, and accusations that the government is deliberately keeping stocks hidden to boost prices.....

.....international commodity prices, especially for wheat and food oils, have increased strongly, by nearly 70% during 2007. This has forced the government to increase domestic wheat prices, from E£220 ($439)per bushel to E£320 ($639)per bushel—the price paid by the government to farmers for the 2008 crop, in the hope that more wheat will be made available for the domestic market. Egypt is the world's largest wheat importer, importing around 6m tonnes/year, about half the country's needs. Rising food prices led the government to increase subsidies by E£4.7bn ($9.4 bn)in the fourth quarter of 2007, taking total subsidies for fiscal 2007/08 to E£14.4bn ($28.75 bn).....

[JJackson]

Anybody who thinks our pols aren't paying attention to all the additional rivers of cash that Argentina's government is bringing in with these export tariffs is crazy.


Thoughts?

It would appear that US politicians are not the only ones to have noticed where the BA government is trying to raise its taxes.

Argentine farm taxes row deepens

[Watcher In The Middle]

...and of all places, it's coming from (wait for it).... ETHIOPIA

Yep, that's right. Ethiopia.

They are (this month) opening the Ethiopia Commodity Exchange (Free market), primarily for grains and Ag products. Modeled after our own Chicago Board of Trade.

These Commodity Exchanges exist in places like India, China, & much of South America. But only South Africa has one in the entire African continent.

The biggest benefit to a place like Ethiopia with having a Commodity Exchange is that farmers (producers) can get broader access to markets than just their local market down the road.

The other part of this is that Ethiopia has spend a fair piece of change (for them) to build up a network of grain storage facilities, where farmers can store grain until ready to sell. This substantially reduces the "boom or bust" issues with crop production, because they no longer have to rush to sell everything.

Link

Another Article

Don't know if it will work or not, seeing how we've had occasional periods of rocky agricultural history in the markets right here in the US. But truth of the matter is, that in Ethiopia, they would be hard pressed to do worse than they have done in the past - so more power to them for trying something different.

If it's successful, more than just Ethiopia will benefit. Egypt might be the real major beneficiary of this.

[Watcher In The Middle]

Here's the link to the FT story about the spike in rice prices today. The US is one of the few rice export markets that is still functioning as a free market.

Jump in rice price fuels fears of unrest
By Javier Blas in London and Daniel Ten Kate in Bangkok
Published: March 27 2008

Rice prices jumped 30 per cent to an all-time high on Thursday, raising fears of fresh outbreaks of social unrest across Asia where the grain is a staple food for more than 2.5bn people.

The increase came after Egypt, a leading exporter, imposed a formal ban on selling rice abroad to keep local prices down, and the Philippines announced plans for a major purchase of the grain in the international market to boost supplies. Global rice stocks are at their lowest since 1976.

Link to article

Another Article

Went back & checked federal crop acreage estimates (January, 2008) on amount of farmland in rice production, and there looks to be only a minimal increase over last year. There's just no overhang of supply in the marketplace.