It's official. The world is facing yet another food crisis. While grain prices have been soaring for months, the U.N.'s Food and Agriculture Organization (FAO) has been reluctant to ring the alarm bell. No longer. In releasing the latest edition of its Food Outlook report the FAO warned Wednesday that international food import bills could pass the one trillion dollar mark, and that the world should "prepare for harder times ahead unless production of major food crops increases significantly in 2011."
While some analysts have been blaming the Federal Reserve's quantitative easing for the run-up in food commodity prices, the FAO put the bulk of the blame on poor harvests. In June of this year, the FAO forecast that world cereal production would rise by 1.2 percent, but the latest report indicates that it will contract by 2.0 percent. The FAO's outlook is consistent with another forecast issued a few weeks ago by the U.S. Department of Agriculture.
Until very recently experts were hoping that ample grain reserves would eventually dampen spiraling grain prices and ward off a repeat of the 2007-8 food crisis. The FAO's report, however, predicts that food import bills for the world's "poorest countries" will rise by 11 percent in 2010, while bills for "low-income food-deficit countries" will go up by 20 percent.
To date, rising grain prices have not triggered the kind of food riots that were seen three years ago, but if there is another round of crop failures next year, severe shortages, higher prices, and food riots could be right around the corner. The FAO's report indicates that world cereals stocks will shrink by seven percent this year with barley plunging 35 percent, maize (corn) 12 percent, and wheat 10 percent.
There is an old adage in food commodity world, the cure for high food prices is high prices. That's certainly true when the price of one grain commodity spikes. If wheat prices soar, farmers plant more wheat. If corn prices rocket, they plant more corn. But when the prices of wheat, corn, soybeans, and barley all head north, that kind of substitution doesn't occur. And with cotton prices up nearly 70 percent since the beginning of the year, it's unlikely that farmers next year will be planning grain instead of cotton. Nor is it likely that farmers will stop producing corn for ethanol.
In the short-term the best hope is that we don't see the kind of drought, flooding and record high temperatures next year that we saw this year, and that a spike in energy prices doesn't further escalate the costs of fertilizer and fuel. With world population still growing by more than 80 million a year, and diets in Asia becoming more meat-intensive, the world may be increasingly prone to grain shortages.
Looking longer term, the world needs to boost food production by 70 percent over the next 40 years if we are going to satisfy our growing appetite for food. Food production in the developing world will have to double just to keep up with projected population growth. And it will have to do so despite soil erosion, loss of arable land to urbanization, rising energy prices, increasing water scarcity, and the increased drought, flooding, and rising temperatures that will accompany global warming.
No matter what happens next year, some will insist that there's still plenty of food in the world, that it's just a matter of eliminating food waste in the developed world. Perhaps, but when the world's grain reserves draw dangerously low and more grain exporters impose grain embargoes, people will go hungry, particularly the urban poor living on $2 a day or less. Average Americans may not feel a world food crisis, but if the price of bread doubles or triples, its impact will surely be felt in the shantytowns and favelas of the world.
Right-wing conspiracy theorists, like Glenn Beck, will insist that high grain prices are signs of a "hyper-inflation" unleashed by the Obama Administration upon the world. The sobering reality is that higher food prices reflect a growing imbalance between food supply and food demand. For a full decade now, the world's farmers have not been keeping up with the world's growing appetite for food.
We may yet stave off the immediate food crisis. We may not be so lucky in the long run.