Global Food Crisis Waits to Return

With the economic crisis, the global food crisis that occupied center stage in 2008 seems relegated to collective amnesia.

No.2 Hard Red Winter Wheat f.o.b. Gulf and USDA Foreign Agricultural Service, Production, Supply, and Distribution Database

As the world begins to move beyond the financial crisis, the global food crisis that occupied center stage in 2008 seems relegated to collective amnesia. It brought the issues of global food security to the forefront, but then food prices moved back to their pre-crisis trends and it went away as quickly as it had come. However, the fundamental causes that triggered the rapid price increases and the riots that ensued, in some areas, have not changed.

The spike in grain prices can be attributed to poor harvests in various parts of the world, lower food stocks held in reserve globally, oil price rises, and banning of grain exports in certain grain exporting countries.

Severe droughts persist in many parts of the world, including China, Australia, southern Asia, Argentina, and the United States. Two thirds of the world’s grain production comes from these countries.

Global food stocks increased with the strong harvest in 2008, which brought the price of grain down. The price of food is closely related to the amount of food stocks held in storage. When food stocks are high the price lowers and when food stocks are low the price of food increases. Early forecasts suggest that food stocks will recover more in 2009 if drought doesn’t severely affect the yield.

A large percentage of the global food stocks are held in China (35.7 percent for wheat and 53.5 percent for rice). China is not a major exporter of either commodity. Its stocks are for domestic consumption and shouldn’t factor into the world price.

High oil prices affect the price of grain through the increased costs of fertilizer and transportation. But high oil prices also encourage farmers to divert land away from food to biofuel. The future will likely see food prices rise along with the price of oil, so long as the United States and Europe have a need to develop self-sufficiency in fuel.

The export bans in 2007 and 2008 in numerous grain exporting countries like China and India for rice and Russia, Kazakhstan, and India for wheat left many grain importing countries scrambling. As Karim Masimov, the Prime Minister of Kazakhstan said when lifting their export ban in 2008—grain and bread prices should not rise, but if the prices on the domestic market do change, he would order another export ban.