The United Nations Food and Agriculture Organization (FAO) has warned of a looming global food crisis as food prices approach 2008 highs.
Food prices have spiked as a result of weather disruption, market speculation and poor crop yields in major production regions. The effects have been severe around the world.
The United States, which as the world’s largest supplier of corn supplies 50% of global demand, recently cut forecasts for many key crops. Likewise, droughts in Brazil and Argentina have hurt crop yields and contributed to rapidly rising prices. Corn and soybeans have traded at their highest levels in 30 months.
Corn is an important source of animal feed, and demand has grown as levels of meat consumption rise, especially in developing countries. Record ethanol production levels are also consuming nearly 40% of the U.S. corn crop.
High prices have helped the booming agribusiness sector in the U.S., but have had severe policy implications in many other parts of the world:
- With high unemployment and poverty levels, Mozambique and Algeria have experienced riots as basic commodity prices have risen.
- Libya has removed taxes and custom duties on locally produced and imported food products to ensure steady supplies of wheat-based goods, vegetable oil, sugar and infant milk.
- Jordan has responded to high food prices with tax cuts on fuel and some foodstuffs.
- Morocco will institute a compensation system for producers of soft milled wheat to maintain a steady domestic supply.
- Food price inflation in Egypt reached highs of 22% in 2010, resulting in repeated protests.
- In India, the typical consumer spends about 50% of his income on food. At the end of last week, food inflation hovered around 16.9% after having reached 18.3% at the end of 2010.
- Prices of onions and vegetables, the main drivers of food prices in India, are still on the rise after extreme weather destroyed crop yields. The government may impose controls on exports, reduce tariffs and ease import restrictions as necessary to ensure sufficient domestic food supplies in the face of high prices.
- South Korean President Lee Myung-bak has declared a “war” on inflation with the price of food a top political priority. The South Korean finance ministry announced it would nearly double domestic supplies of 16 essential foods to stem price inflation.
- Over the course of the past year, vegetable prices have swung wildly in South Korea, at times spiking by 300%-400% in price following cold weather snaps.
The costs of global food imports in 2011 will likely reach a record high, says the FAO. Last year, global food imports topped the $1 trillion mark for only the second time in history.
As the new year gets underway, food supply, demand and price will clearly be a top political, social and economic issue. We are keeping a close eye on new developments.