Does a Global Food Crisis Lie Ahead?
With the worst US drought in decades pushing prices of agricultural commodities to record high levels, the world may be facing a new food crisis, the Financial Times reported on 19 July 2012. Corn price surpassed the peaks of the 2007-08 crisis, reaching a record $8.24 a bushel on the Chicago Exchange. According to Bloomberg, corn has soared more than 55 percent since June 15th. Soybeans were also traded at record levels.
The reason for soaring corn prices is the drought in the US Midwest, with the US Department of Agriculture (USDA) repeatedly slashing its corn production forecasts, as the weather conditions continue to deteriorate. According to the FT, meteorologists have warned that at least half of the US corn and soybean belt will remain dry over the next fortnight.
Yet, the consequences of the worst US drought since 1956 are likely to stretch far beyond the US Corn Belt, considering that the US is the world’s largest producer of corn, supplying nearly half of the world’s exports. Corn, on the other hand, is related to other food items since it is also used as a component in processed food and in addition, is largely fed to livestock.
!m[](/uploads/story/200/thumbs/pic1_inline.png)As a consequence, the US drought and the anticipated reduced production are likely to affect consumers all over the world, potentially leading to a repetition of the 2007-08 food crisis, when, as noted in the FT article, a rise in prices led to food riots from Bangladesh to Haiti. Yet, at the time the main cause for the crisis was an extreme shortage of wheat, which is not the case at present. According to the FT, despite the record corn and soybean prices, many policy makers do not believe that there is a food crisis ahead, since the global supply of wheat and rice, the commodities most crucial for food security, remains relatively plentiful.
And yet, not all experts seem to share the same opinion, with the Guardian recently quoting Robert Thompson, a food security expert at the Chicago Council of Global Affairs, who pointed out that what happened to US supply would have a significant impact around the world. “If the price of corn rises high enough, it also pulls up the price of wheat,” he notes, with corn being substituted by wheat at a certain price level.
In addition, the US is not the only region in the world affected by dry weather conditions. On July 24, Bloomberg reported that heat waves in Southern Europe were withering the corn crop and reducing yields in a region which accounts for 16 percent of global exports. “Everyone is looking to the US, but clearly in Europe we’ll need to import a lot of wheat and corn,” notes Cedric Weber, he head of market analysis at the French farm adviser Offre et Demande Agricole, as quoted by Bloomberg.
According to the FT, traders believe that unless the weather in the US dramatically improves, corn prices could rise above $9 a bushel by early August. The FT quotes Jose Graziano da Silva, director-general of the UN Food and Agriculture Organisation who voiced his concern about the rises in food commodity prices given their potential implications, particularly for the vulnerable and poor. Mr Graziano da Silva also said that the FAO would convene an intergovernmental summit before the end of 2012 so as to address the issue of food security, should the crop situation deteriorate any further.
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