Wed Nov 14th, 2007 at 07:07:14 AM EST
Last June I wrote a diary with the same title. In the last paragraph I said:
Prognosis: food prices will rise.
Well, they did.
pat, pat, pat myself on the back.
Now that the 2007 agricultural year is almost over, where do we stand?
Promoted by Colman
One important change from the June diary is my growing awareness of the consequences of the really rather silly¹ divergence of food production to fuel (ethanol, bio-diesel) production:
With the USDA projecting:
Projected U.S. ending stocks of corn [maize, for you furiners] for 2007/08 are lowered 100 million bushels this month as lower production more than offsets reduced feed and residual use. Production is forecast at 13.2 billion bushels, down 150 million on lower yields.
So, total US corn production was lower, feed, and residual (whatever the hell that means) demand was down but the price:
so we can expect to see more of this:
With wheat the situation is disconcerting but not grim. As the FAO reports:
For most cereals, supplies are much tighter than in recent years while demand is rising for food as well as feed and industrial use. Stocks, which were already low at the start of the season, are likely to remain equally low because global cereal production may only be sufficient to meet expected world utilization. International prices of cereal have risen, fueling domestic food price inflation in many parts of the world.
Wheat, for most people the 'Staff of Life,' the earlier optimistic forecasts have been gradually revised down.
...world wheat output in 2007 is now forecast to rise by only 1 percent from the sharply reduced output in 2006. This relatively insignificant increase in production, coupled with already very low carryover stocks, has resulted in an extremely tight global market situation. As a result, wheat prices have continued rising since the start of the season, reaching record highs in September, and remaining generally strong and volatile in October. High wheat prices have translated into higher food prices in many countries, giving rise to numerous market interventions by governments, in the form of price controls, reduction of import barriers and/or imposition of export restrictions.
As the price for oil, in dollars, has risen countries are being faced with restricting imports. This has resulted in a strange situation: global trade in grains is expect to contract as the tight supplies, volatile prices, and high fuel costs limit the ability of countries to purchase grains in the open market.
At US$745 billion, the global cost of imported foodstuffs in 2007 would be some 21 percent more than the previous year and the highest level on record. Much of the anticipated growth would be fueled by higher expenditures on grain based products, in spite of expected net reductions in imported volumes of these foodstuffs. Soaring prices are to blame, especially for wheat, but also freight costs, which have doubled since last year, putting additional pressure on the ability of countries to cover their import expenditures.
In the meantime the world's population seems have grown another 1% over the last year -- tho' nobody really seems to know for sure.
So expect this:
to get worse.
There are some things being done. France, for example, is going to allow farmers to plant on the 10% set-aside land which should boost production from the 2006/2007 36.5 million tons (US tons) which, all things being equal, would boost global production by ~4 million tons.
Forecasts are suggesting an increase of 5% in 2007/2008 over the 2006/2007 production. (Wheat is normally sown in the fall.) But even so (FAO, again):
The ratio of the major exporters' ending wheat stocks to their total disappearance is forecast precariously low at just 10 percent at the end of the 2007/08 seasons. High wheat prices on international markets are already leading to increased import bills for the low-income food-deficit countries and should production not increase significantly in 2008 there could be major implications for the supply/demand outlook.
The "major implications" are:
Excluding China and India, which account for some two-thirds of the aggregate cereal output, production in the rest of LIFDCs would decline by nearly 2 percent after two consecutive years of substantial increases. This, coupled with population increases, is likely to result in several LIFDCs having to resort to larger imports to cover their consumption needs, which, at a time when international cereal prices are at very high levels, will put a heavy burden on the financial resources of these countries.
[LIFDC = Low-Income Food-Deficit Countries, about 1/2 of the countries in the world.]
So let's tot all this up.
- The US had a lower corn harvest than last year - reducing food production
- The US is shifting from food to fuel - reducing food production
- Causing a rise in food prices in Mexico, among other place
- Oil prices have increased so fuel to move the grain around has increased which has increased the gross cost of importing food
the previous two combined has
- Impacted the global economies ability to move surplus to markets to consumers
- as the demand goes ever higher
- Countries are starting to do 'something'
- But not enough
- And countries that really, really, need to import food
Just as a kicker ...
In August the UN held a world forum, in Iceland, on "[The] need to restore and protect soil resources." Which reported:
To meet the needs of a rapidly rising human population, the planet needs to produce more food over the coming 50 years than it did in the last 10,000 years combined ...
¹ Criminally insane, actually