The New Geopolitics of Food

[Richard]

Something else to fret over...especially when one considers that since I was born in 1950, the world population has nearly tripled.

And so it goes...

Richard

The New Geopolitics of Food
ForeignPolicy, 29 Apr 2011

In the United States, when world wheat prices rise by 75 percent, as they have over the last year, it means the difference between a $2 loaf of bread and a loaf costing maybe $2.10. If, however, you live in New Delhi, those skyrocketing costs really matter: A doubling in the world price of wheat actually means that the wheat you carry home from the market to hand-grind into flour for chapatis costs twice as much. And the same is true with rice. If the world price of rice doubles, so does the price of rice in your neighborhood market in Jakarta. And so does the cost of the bowl of boiled rice on an Indonesian family's dinner table.

Welcome to the new food economics of 2011: Prices are climbing, but the impact is not at all being felt equally. For Americans, who spend less than one-tenth of their income in the supermarket, the soaring food prices we've seen so far this year are an annoyance, not a calamity. But for the planet's poorest 2 billion people, who spend 50 to 70 percent of their income on food, these soaring prices may mean going from two meals a day to one. Those who are barely hanging on to the lower rungs of the global economic ladder risk losing their grip entirely. This can contribute -- and it has -- to revolutions and upheaval.

Already in 2011, the U.N. Food Price Index has eclipsed its previous all-time global high; as of March it had climbed for eight consecutive months. With this year's harvest predicted to fall short, with governments in the Middle East and Africa teetering as a result of the price spikes, and with anxious markets sustaining one shock after another, food has quickly become the hidden driver of world politics. And crises like these are going to become increasingly common. The new geopolitics of food looks a whole lot more volatile -- and a whole lot more contentious -- than it used to. Scarcity is the new norm.

(Cont'd) http://www.foreignpolicy.com/article...litics_of_food

[Pete]

I seem to recall threads around here when America first started turning corn into fuel.

The price of tortillias shot up in Mexico.

It's amazing the amount of food that moves around the globe every day.

[nmap]

The prices are fascinating to watch...corn and wheat hit high levels and have backed off a little, but they were both up strongly today. My opinion is that we'll see them head somewhat higher, although that remains to be seen.

I like to watch DBA - not a pure play, but a fairly nice way to follow the action of food in general. LINK . The exact weightings are HERE

Anyway, the prices have moved up strongly. If it goes notably higher, it should be interesting to see if the Middle Eastern issues spread.

[mark46th]

We should use wheat, corn, soybeans, etc, the way the Middle East uses oil.

[ES 96]

Originally Posted by Broadsword2004

How Goldman Sachs Created the Food Crisis

Excellent article, thank you for posting that. Anyone take issue with it or can provide more insight? nmap?

[The Reaper]

Originally Posted by mark46th

We should use wheat, corn, soybeans, etc, the way the Middle East uses oil.;..

We do.

The prices of commodities are relatively unchanged compared to the value of them when compared to the dollar. Anyone who bought silver last year has seen a doubling of their money, should they wish to sell it. Of course, the dollars you convert it to will be increasingly worthless and commodity prices (to include food and oil) will continue to rise.

As predicted, months of the Fed monetizing the debt and printing fiat money without a basis ("qualitative easing") has led to inflation, devaluation of the dollar, and a host of other problems.

The really bad news is that unless people quit arguing and then compromising over relatively small amounts in the budget and start making major changes, things are going to get a lot worse.

The real question is whether we have reached a tipping point beyond which we cannot recover. When people increasingly rely upon government payments to live on, and less than a majority pay Federal income taxes, there is a slippery slope leading to failure and collapse.

Bread and circuses indeed.

TR

[akv]

Originally Posted by Broadsword2004

How Goldman Sachs Created the Food Crisis

IMHO this article itself is speculative and ignorant at best. It is clear there are no saints and more than a few devils at GS, but they can't predict or control the weather, the numerous ways to short commodities, or the fact global geographics are changing with China and India among other Third World nations trying to modernize and increase their standard of living. A derivative is simply a security which derives it's price from another security known as an underlying. Commodity derivative prices are most impacted by price movement in their underlyings, which like most anything is still subject to the laws of supply and demand.

If you are China with just under 20% of the worlds population trying to build a middle class for political stability, and three times more people than arable land to feed them, commodities will bid up. Unless you have insider information, any investment is a degree of speculation. We grow the world's food. If you are a country that can't feed your population , buy our debt and behave.

I would be less skeptical of the Chinese regime claiming we are using food prices and Twitter as weapons against them, since their regimes tend to blow up historically when inflation hits certain levels, and now the disgruntled can communicate. That sucks for them.

Blaming GS for this particular issue is like blaming Mcdonalds for obesity.

[Dusty]

Geopolitically speaking:

Out here in Dustyburrough, the prices of vegetables, fruit, berries, nuts and venison have remained fairly constant. $0.00. + bullets.

They're gonna test my well water next week; if it's cleared, that'll cost the same.

I'm building a black walnut/fiberglass/recurve bow during bad weather for if and when I can't get hunting bullets.

We rotate our meds supply to keep at least a year out.

We've had all questionable teeth pulled.

All I need now is a couple dozen cases of MacAllen 18...

[nmap]

Originally Posted by ES 96

Excellent article, thank you for posting that. Anyone take issue with it or can provide more insight? nmap?

I don't know if I can provide much more - the article is a distillation of the important issues.

Water is a very big deal. Read When the Rivers Run Dry: Water--The Defining Crisis of the Twenty-first Century for more. One item the article didn't mention is our own Ogallala aquifer, with a very slow recharge rate (most of the water comes from the distant past). A lot of our own grain production depends on it, although it isn't expected to be exhausted in the near term. However, it is noteworthy that the article includes this:

"In arid Saudi Arabia, irrigation had surprisingly enabled the country to be self-sufficient in wheat for more than 20 years; now, wheat production is collapsing because the nonreplenishable aquifer the country uses for irrigation is largely depleted. The Saudis soon will be importing all their grain."

So, again, water is an issue and it is hitting now. When countries swing from self-sufficiency to imports, that will affect availability.

And climate change? Controversial, I know. Climate change has happened, and in my opinion it is happening now. By this I do not mean man-caused climate change - but I come down on the side that says our climate is changing, whatever the reason might be. It appears that we're seeing a drier climate in my area, as well as greater volatility - not good for crops.

Some contend that we're on the verge of major climate change over the next decade. True or not, I don't know. But if true, our production of food is likely to decline.

Population is growing, so that will place added demands on production.

Some countries - China, for example - are becoming more affluent, which probably means that consumption of meats and dairy products will increase. However, this means that grain consumption by animals will increase to provide those products, adding more to the demand. For more on the subject, see page 29 of the JOE 2010 report, HERE

Oil is, clearly, becoming more expensive. I remain a proponent of peak oil theory, which generally supports the idea that production of oil has reached (or will soon reach) a maximum leading to an irreversible decline. If that's true, production of crops becomes more problematic, since we depend on both mechanization and transportation in our agricultural model. At the very least, it suggests that production costs for grain will increase.

Can commodity speculation increase prices? For a brief while, yes. But the reality of supply and demand will trump speculation. Even by Goldman.

Bottom line, I expect food prices to continue to go up. I own DBA, and plan to hold it - because I expect the prices to continue up. There may be fluctuations, but I perceive the trend as up.

And, as always - MOO, YMMV.

[GratefulCitizen]

I'll start worrying about actual food and water supplies (in this country) when golf courses and car washes are no longer profitable.
The main problems with water are the complicated legal issues which stymie investment and development.

Bubbles in commodities will cause a supply over-response.
The bubble will pop and then we'll have a glut.

Loose monetary policy results in inefficient allocation of capital.
The game will have to end eventually and those who keep their powder dry will profit (again).

From what I've read, we're probably not going to see a farm land bubble like the '80s.
High down payment requirements are preventing this.

The current inflationary policies by the central bank look an awful lot like economic warfare against China.
Wars of attrition are a lose-lose arrangement, with the poor of both countries paying the price in this one.