Unpredictable Weather Aggravates Food Crisis Concerns

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on Sep 13, 2012

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Unpredictable Weather Aggravates Food Crisis Concerns

Wet weather in Russia and the worst drought in 50 years for the US Midwest are combining to produce significant spikes in global soft commodity prices. In August, soybean prices jumped 17 percent, while maize and wheat rose by a quarter. The World Bank’s Food Price Index, which weighs the dollar price of a basket of food commodities, went up by 10 percent in July as a result of an increase in food prices across the board. The only major exception was rice with a four percent price decline.

Current price levels now exceed those observed during the June 2008 and February 2011 peaks. Fears are being expressed of another food crisis comparable with that of 2007/2008 which severely hurt the world’s poorest and caused riots in South America, the Middle East and parts of Africa. Case in point – Oxfam, the international organisation fighting poverty and injustice, has reported that since the beginning of 2012, rising food prices and drought have caused food shortages in the Sahel region of Africa, affecting more than 18 million people.

!m[](/uploads/story/346/thumbs/pic1_inline.png)With the benefit of hindsight, observers say that the main fault in the management of the 2007/2008 crisis was producers – or controlling state agencies – throttling their exports as a means of controlling domestic prices. This created a shortage in supply in international markets and pushed price levels even higher. According to Abdolreza Abbassian, grain analyst for the UN’s food and agricultural organisation (FAO), there is the potential for a similar situation to develop once again. “There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn’t happen we will not see such a serious situation as 2007/08,” he said. “But if those policies get repeated, anything is possible.”

Concerns are also raised by the prognosis of Japan’s Meteorological Agency, which says that an El Nino weather phenomenon has emerged and will stay until the winter. El Nino causes a warming of sea surface temperatures in the equatorial Pacific and occurs every four to twelve years. The natural phenomenon is the opposite of La Nino, which is the cause of floods in Australia and some parts of Asia. The El Nino pattern might influence India’s agriculture but will have little to no effect on Chinese crops. On the upside, El Nino might bring more rain in the United States in the coming months, which will help boost soy yields but probably do little or nothing for corn, with the drought-afflicted US maize crop now beyond saving by even large amounts of rain.

El Nino also usually causes droughts in Australia and floods in South America but as experts point out, the phenomenon behaves in different ways every time and the exact repercussions are hard to forecast. Luke Mathews, commodities strategist at the Commonwealth Bank of Australia, said the bank was expecting a good crop yield in South America over the next six months. He also pointed out that eastern Australia’s cropping zones had high enough soil moisture to withstand a drought. “There may be areas that are adversely affected, but no two El Nino are the same. It is certainly a risk but it doesn’t mean that we are going to have a disaster,” Mathews added.

Because of high grain prices, US farmers are sending their animals to slaughter earlier than usual, which will result in lower meat prices in the short term. Noted Commerzbank, “The high fattening costs in recent months have meant that the animals had to be slaughtered sooner, as their sale would otherwise have been even less profitable.” The US Department of Agriculture has predicted three to four percent higher food prices for American consumers next year. At the same time it lowered to around four percent its forecasted increase in the prices of fish, poultry and meat. These reductions were made because of the early stock slaughter but the long-term ramifications are yet to be seen. “The profitability outlook for livestock has changed owing to the spike in feed costs. In cattle, the outlook has also deteriorated,” Deutsche Bank said. “We expect a significant reduction in livestock numbers.”