Warfare: Food Supply/Access

[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]

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.

[SWJED]

Watcher In The Middle, thanks for the links. With much of my attention devoted to other portions of the SWJ Empire of Knowledge, I am most deficient in following the great contributions of Council members.

Bottom-line, this one caught my attention on contributing - there are dozens of the same on many threads. To all who are making this thing work - thank you very much!

[Watcher In The Middle]

...that's interesting here:

Hedge funds raise profile in U.S. grain business
Thu Mar 27, 2008 3:47pm EDT
By Sam Nelson

CHICAGO (Reuters) - The presence of hedge funds in the U.S. agricultural sector expanded on Thursday with the sale of ConAgra Foods Inc's grain business to Ospraie, as speculators increasingly tie their futures trades to physical markets.

Trade sources said the sale was also a sign of tough times for grain companies which must find ways to protect against wild swings in the futures market and raise extra money for margin calls due to a credit crunch.

ConAgra said earlier Thursday it would sell its commodity trading and merchandising operations to Ospraie Special Opportunities fund, an affiliate of investment management firm Ospraie Management.

Link to full article

Another viewpoint

There's a whole lot of "talk" going on about this one. First off, there's other recent "new" hedge funds charging into the commodity biz, being that the mortgage and credit business profit opportunities have dried up. So, it's onward to commodities.

This market's going to be a whole lot more interesting, though. First off, we're already sitting at or near record highs in prices, and the market (in many commodities) may already be close to being fully priced. But, these hedge funds will ring much more liquidity into the commodities markets, and that tends to mean higher, and more volatile pricing. Means that nations buying food exports from the US, but also other nations, will find everything to be more costly.

Secondly, ConAgra appears to be betting that it's a great time to sell their Commodities merchandise and trading business, because (a) getting $2.1 bil US isn't pocket change, plus (b) there is no business disadvantage to them, because they are the only one of the majors which had a separate line of business for commodities trading. Looks like they think the assets they are selling today will be back on the market in a few years for less, and they can buy back if they so decide to.

But this has interesting potential considerations, because these hedge funds are out to make serious returns in commodities, and that means bottom line increasing prices for commodities. And the US is fast becoming one of the "suppliers of last resort" in terms of open market access for grain crops.

Imagine if wheat (Ex.: May, 2008 Wheat at CBOT closed right at $10 a Bu. this last week), goes up another 25%, which isn't out of the ballpark. Imagine $20 a bu.

This has real implications, because many of the nations which are major food importers are nations we have/had long standing negative balance of trade issues with. Those deficits may start to disappear, because (a) commodity food prices are going up rapidly, and (b) We've (the US) has the available food supply.

One immediate result would likely be that these nations will not want the US dollar to strengthen, because then acquiring the commodities will cost even more.

Game is going to get interesting....

Normally, this might not be a topic for SWJ. But food shortages can tend to create some interesting decision making among nations, and using armed conflict to establish future food supplies is one of those considerations, and it's not like it hasn't been a motivation in the past.

Btw, SWJ is "THE BEST". Love it here, because if you are into thinking, here's the place to be. If you are into "Talking Points", IMO, you best move on.

[jcustis]

On the micro level, this is a big problem in the Philippines. My wife just spent an hour or two talking to her mother who is in Pasig City (suburb of Manila) right now. It seems that the average price went from 18 pesos to 40 pesos is a short and sharp increase, and the result is many people are having a hard time getting access to the staple.

The news is getting significant airtime on the nightly news shows we can catch via the satellite channel back to home for her. Folks are getting worried. Don't know if this is unprecedented, but it is definitely becoming uncomfortable across the country.

[Norfolk]

Normally, this might not be a topic for SWJ. But food shortages can tend to create some interesting decision making among nations, and using armed conflict to establish future food supplies is one of those considerations, and it's not like it hasn't been a motivation in the past.

This is most definitely a topic for the SWJ, and a most important one at that. With food staples (and fuel) costs shooting up all over the globe, and real hardship affectling the lives of people across the world (even in the West it's hurting many people now), and growing political instability (people killing each other for cooking oil in China is just one sign of the stress that is building up), oh yeah, this is a topic for us. Great work, Watcher.

This is very unsettling news; and even Cargill has sold one of its operations to this hedge fund. I mean Cargill?!, the great-grandaddy of them all? I can't help but think that there ought to be laws against these sorts of acquisitions.