Tensions rise as world faces short rations

[LQT]

Tensions rise as world faces short rations By Russell Blinch and Brian
Love
Sun Mar 30

Food prices are soaring, a wealthier Asia is demanding better food and
farmers can't keep up. In short, the world faces a food crisis and in
some places it's already boiling over.

Around the globe, people are protesting and governments are responding
with often counterproductive controls on prices and exports -- a new
politics of scarcity in which ensuring food supplies is becoming a
major challenge for the 21st century.

Plundered by severe weather in producing countries and by a boom in
demand from fast-developing nations, the world's wheat stocks are at
30-year lows. Grain prices have been on the rise for five years,
ending decades of cheap food.

Drought, a declining dollar, a shift of investment money into
commodities and use of farm land to grow fuel have all contributed to
food woes. But population growth and the growing wealth of China and
other emerging countries are likely to be more enduring factors.

World population is set to hit 9 billion by 2050, and most of the
extra 2.5 billion people will live in the developing world. It is in
these countries that the population is demanding dairy and meat, which
require more land to produce.

"This is an additional setback for the world economy, at a time when
we are already going through major turbulence. But the biggest drama
is the impact of higher food prices on the poor," Angel Gurria, head
of the Organization for Economic Cooperation and Development, or OECD,
told Reuters.

In Gurria's native Mexico, tens of thousands took to the streets last
year over the cost of tortillas, a national staple whose price
rocketed in tandem with the price of corn (maize).

Global food prices, based on United Nations records, rose 35 percent
in the year to the end of January, markedly accelerating an upturn
that began, gently at first, in 2002. Since then, prices have risen 65
percent.

In 2007 alone, according to the U.N. Food and Agriculture
Organization's world food index, dairy prices rose nearly 80 percent
and grain 42 percent.

"The recent rise in global food commodity prices is more than just a
short-term blip," British think tank Chatham House said in January.
"Society will have to decide the value to be placed on food and
how ... market forces can be reconciled with domestic policy
objectives."

Many countries are already facing these choices.

After long opposition, Mexico's government is considering lifting a
ban on genetically modified crops, to allow its farmers to compete
with the United States, where high-yield, genetically modified corn is
the norm.

The European Union and parts of Africa have similar bans that could
also be reconsidered.

A number of governments, including Egypt, Argentina, Kazakhstan, and
China, have imposed restrictions to limit grain exports and keep more
of their food at home.

This knee-jerk response to food emergencies can result in farmers
producing less food and threatens to undermine years of effort to open
up international trade.

"If one country after the other adopts a 'starve-your-neighbor'
policy, then eventually you trade smaller shares of total world
production of agricultural products, and that in turn makes the prices
more volatile," said Joachim von Braun, director general of the
International Food Policy Research Institute in Washington.

In Argentina, a government tax on grain led to a strike by farmers
that disrupted grain exports.

Vietnam and India, both major rice exporters, announced further curbs
on overseas sales on Friday, sending rice higher on U.S. futures
markets. Other food commodities retreated from record highs in recent
days but analysts attributed that less to fundamentals and more to
profit-taking by investors.

DISCONTENT

In the next decade, the price of corn could rise 27 percent, oilseeds
such as soybeans by 23 percent and rice 9 percent, according to
tentative forecasts in February by the OECD and the U.N.

Waves of discontent are already starting to be felt. Violent protests
hit Cameroon and Burkina Faso in February. Protesters rallied in
Indonesia recently and media reported deaths by starvation. In the
Philippines, fast-food chains were urged to cut rice portions to
counter a surge in prices.

Last year, the central bank of Australia -- where minds were focused
by a two-year drought -- asked whether the surge in commodity prices
could be one of the few really big ones in world history, like those
of the mid-1930s or the 1970s.

Real commodity prices remained flat or even fell during the rapid
industrialization of the United States and Germany in the early 20th
century. But the industrialization of China, with 1.3 billion people,
is on a totally different scale, it noted.

"China's population is proportionately much larger than the countries
that industrialized in earlier periods and is almost double that of
the current G7 nations combined," the Australian central bank said.

The emergence of China's middle class is adding hugely to demand for
not just basic commodities like corn, soybeans and wheat, but also for
meat, milk and other high-protein foods.

The Chinese, whose rise began in earnest in 2001, ate just 20
kilograms (44 pounds) of meat per capita in 1985. They now eat 50
kilograms (110 pounds) a year.

Each pound of beef takes about seven pounds of grain to produce, which
means land that could be used to grow food for humans is being
diverted to growing animal feed.

BIOFUEL TROUBLE

As the West seeks to tackle the risk of global warming, a drive
towards greener fuels is compounding the world's food problems.

It is estimated that one in four bushels of corn from this year's U.S.
corn crop will be diverted to make fuel ethanol.

"Turning food into fuel for cars is a major mistake on many fronts."
said Janet Larsen, director of research at the Earth Policy Institute,
an environmental group based in Washington.

"One, we're already seeing higher food prices in the American
supermarket. Two, perhaps more serious from a global perspective,
we're seeing higher food prices in developing countries where it's
escalated as far as people rioting in the streets."

Similarly, palm oil is at record prices because of demand to use it
for biofuel, causing pain for low income families in Indonesia and
Malaysia, where it is a staple.

But despite the rising criticism of biofuels, the U.S. corn-fed
ethanol industry enjoys wide political support because it boosts
farmers, who suffered years of low prices, and that support is likely
to continue.

John Bruton, the European Union's Ambassador to the United States,
predicts that the world faces 10 to 15 years of steep rises in food
costs. And it is the poor in Africa and, increasingly, South East
Asia, who will be most vulnerable.

The director of the U.N. World Food Program, Josette Sheeran, is on a
global tour in search of donations to fill a $500 million funding gap
caused by the rising prices. America's largest aid program, Food for
Peace, has seen its commodity prices jump 40 percent and may have to
curtail donations.

But aid and many policy options available to governments for helping
the hungry distort markets and cause pain elsewhere in their
economies, according to proponents of free markets.

"I was involved in a government that introduced food subsidies in
Ireland and we had the devil's own job to get rid of them," said
Bruton, who was Prime Minister of Ireland from 1994 to 1997.

Others trust that better fertilizers and higher-yielding crops -- some
of them genetically modified -- will keep production in line with
demand.

Bruce Babcock, an economist at Iowa State University, said the rising
markets are a signal to farmers that they need to raise production.

"It's actually the greatest time in the world to be a farmer around
the world," Babcock said. "We are going to see fairly substantial
increases in production because farmers have never had such a large
incentive to increase production."

But others note that expensive seeds and fertilizers are out of reach
of farmers in poor countries.

Around the beginning of the 19th Century, British political economist
Thomas Malthus said population had the potential to grow much faster
than food supply, a prediction that efficient farming consistently
proved wrong. Now, at the beginning of the 21st century, some are
revisiting his predictions.