From the Christian Science Monitor:

Everything now depends on this year’s harvest. Lowering food prices to a more comfortable level will require a bumper grain harvest, one much larger than the record harvest of 2008 that combined with the economic recession to end the 2007-08 grain price climb.

If the world has a poor harvest this year, food prices will rise to previously unimaginable levels. Food riots will multiply, political unrest will spread, and governments will fall. The world is now one poor harvest away from chaos in world grain markets.

From BusinessWeek:

Demand for wheat from Australia, the fourth-biggest shipper, is strong, said exporter AWB, as buyers from Europe to the Philippines battle for supplies amid prices near their highest level in more than two years.

From Wall Street Journal:

Prices surged to their highest intraday level since late August 2008 after the U.N.’s Food and Agriculture Organization, or FAO, said severe drought in China’s main winter wheat region could pose a serious threat to the Asian giant’s output. The reduced production comes as world markets already face supply strains, particularly for high-quality wheat used for flour.

President Bush has linked higher food prices to higher demand from India and China, but the leaked World Bank study disputes that: “Rapid income growth in developing countries has not led to large increases in global grain consumption and was not a major factor responsible for the large price increases

The news also suggests that the report was finished back in April, but was held back:

Senior development sources believe the report, completed in April, has not been published to avoid embarrassing President George Bush.

It all sounds to corny to me, hehehe….

Yeah, right. Same old story.

Drought and climate change have led to a slow down in the growth of agricultural production: in Australia, wheat production plummeted by 52% between 2004 and 2006, and grain production dropped by 13% in the United States and 14% in the European Union in the same period. The use of mainly corn-based biofuels is also contributing significantly to the current shortages. Lastly, changes in eating habits in the West and in the so-called emerging markets primarily in Asia, along with rapid urbanization, have driven up demand for food, putting further strain on supply. Speculation on food commodities is also a major destabilizing factor.

There’s been a warning of food riots every month, from different sources. Sounds like things may destabilize in parts of the world by the end of the year.

A recent NYTimes Editorial describes the current situation. Although the rise in food prices are partly a result of “uncontrollable forces — including rising energy costs and the growth of the middle class in China and India”, rich nations are making the problem worse by increasing biofuel production:

The International Monetary Fund estimates that corn ethanol production in the United States accounted for at least half the rise in world corn demand in each of the past three years. This elevated corn prices. Feed prices rose. So did prices of other crops — mainly soybeans — as farmers switched their fields to corn, according to the Agriculture Department.

Rice is a staple for half the world. Rice prices have almost doubled this year, mostly due to countries like India and Vietnam banning the export of certain types of rice. India has tried to control domestic costs by raising the export prices of non-basmati rice. In Thailand, there are reports that about 200,000 tons of rice (worth over $100 million) have gone missing from national warehouses. Since January, thousands of troops have been deployed in Pakistan to guard trucks carrying wheat and flour.

In a world where there are millions of people who are wealthy, smart, and creative, we shouldn’t be rioting over food.

The price of wheat has more than tripled during the past 10 months, making Americans’ daily bread — and bagels and pizza and pasta — feel a little like luxury items

“It’s going to affect everything … impact on every section of the grocery store,” said Michael Bittel, senior vice president of King Arthur Flour Co. in Norwich, Vt.

And JPMorgan Chase, along with the Feds, are trying to bail out Bear Stearns, an 85 year old investment bank, whose stock lost more than 20% of it’s value in recent days.

CCNWON has a good writeup of stagflation. In it he shows how commodity prices have gone up in recent years yet the wages for the average American has gone down about 2%.

On the supply side, bad weather has affected key wheat-growing areas such as Australia and South America, cutting into harvests and thus reducing inventories. Another reason for reduced wheat supplies is that many farmers have diverted their land to biofuel crops, such as corn for ethanol.

Two major trends have been pushing prices up faster than they have risen for more than 30 years. One is that increasingly prosperous consumers in India and China are not only eating more food but eating more meat. Animals have to be fed (grains, usually) before they are butchered. The other is that more and more crops – from corn to palm nuts – are being used to make biofuels instead of feeding people.

The amount of corn it takes to produce 75 litres of ethanol– roughly a tank of fuel– is enough corn to feed one person on a 2,000-calorie-a-day diet for a year

Of course, the Iowa Corn Promotion Board will be right there saying it’s not their fault.

I would partly agree, in that they are not entirely responsible. Of course oil prices, labor costs, transportation costs, etc share some of the blame. But the article ends by advocating the supposedly low extra cost of corn in order to reduce our dependance on foreign oil. [Gee thanks!! So what kind of gas guzzling truck do you drive? ] As more and more farmers switch to growing corn for biofuel rather than food production, food prices have to go up.

Ethanol producers in this country receive a tax credit of 51 cents a gallon, on top of billions of dollars in direct corn subsidies. (In 2005, the most recent year for which figures are available, it was $9 billion.) In Europe biodiesel subsidies can approach $2 a gallon. 

Where does the feed for chicken, pigs, and cattle come from? If farmers can get more money for sending the corn to ethanol distilleries rather than food production facilities, the economics of supply and demand would dictate that food prices would go up. Corn is used everywhere. Less corn for everyday staples, means higher costs for everyday staples.

And as the National Corn Growers Association themselves say, “Ethanol production makes huge amounts of the nation’s corn disappear”.