Feeding Frenzy

Feeding Frenzy

Mini Teaser: Wars for oil? Food fights now seem more likely, because we’re paying the price for not keeping up with rising emerging-market demand. Yet there’s light at the end of the tunnel—increasing supply isn’t an impossible task.

by Author(s): Javier Blas

FOOD. MAN'S most-essential resource. And now a cause of war? For years, strategists, policy makers and the rest of the foreign-policy cadre worried the world's vanishing resources would be the cause of conflict. But of course, with energy assets concentrated in the Middle East and crude-oil prices rising from a historical average of $18 a barrel to more than $100 a barrel today, most scenarios centered on a war over oil. At their most imaginative, people have planned for water shortages as a trigger. What no one seemed to be expecting was serious political instability caused by a lack of food.

This is not just threat mongering. Experts around the world have voiced concern. Horst Seehofer, Germany's agriculture minister, has warned that "food conflicts" lurk around the corner. UN Secretary-General Ban Ki-moon recently told a conference that "if not handled properly, this crisis could result in a cascade" of others. It could become "a multidimensional problem affecting economic growth, social progress and even political security around the world." Josette Sheeran, head of the World Food Program (WFP), added that riots in more than thirty countries were "stark reminders that food insecurity threatens not only the hungry but peace and stability itself." The World Bank estimates that about 100 million people in 2007 were absorbed into the ranks of the poor and hungry because of the surge in food costs, reversing rich countries' steady efforts to halve global hunger by 2015. Jacques Diouf, head of the UN's Food and Agriculture Organization (FAO), said in April he was surprised the UN Security Council had not yet called on him to explain the crisis.

Food shortages and price increases have a long history of triggering political turmoil. They were precursors to the French revolutionary movements in the 1700s, and they played a key role in Egypt's 1977 popular uproar-the bread intifada-which challenged President Anwar el-Sadat's rule. But it looked like the problem was solved because the last time food prices were even considered an issue was twenty years ago, when the world's seven richest countries met at their 1987 summit in Venice, Italy. But then, the concern was low prices and "agricultural commodities in surplus," rather than scarcity and inflation.

The cozy notion that our food problems are over is under assault after prices, measured by the FAO's index, jumped almost 60 percent in the last year. Staples such as wheat, corn, soybeans and rice, for decades considered abundant, are today scarce and much-more expensive. Although it is unlikely that the ongoing food crisis will trigger full-scale wars, it is clear rising food prices have become a threat to global stability, shaking several poor countries' governments and disrupting international trade.

In the first-few months of 2008, the government of Haiti fell amid sharp price increases in staples, particularly rice. Countries as far apart as Egypt and Bangladesh suffered riots. Indeed, according to the World Bank, up to thirty-five countries have experienced food riots, and many more have been forced to make policy U-turns-increasing subsidies, raising civil-servant salaries or restricting basic-foods trade.


TWO LONG-term trends are at the heart of this current crisis: swelling demand and sluggish supply growth. What we see now, ironically, is that the rise in global demand for food has come about as a result of the successes of globalization. The subsequent reduction in world poverty, growth of emerging countries like China-large purchasers of protein foodstuffs such as dairy products or meat-and increases in wealth there all left a sharp increase in demand.

At the same time, though, there were mass decreases in production. Farming productivity slowed down after years of strong growth because of a reduction in global research in new high-yielding seeds and decreased spending in agronomics like irrigation. Adverse weather, which destroyed crops and hampered farming, and the needs of the biofuel industry, which requires vast amounts of grains, particularly corn, drained supplies even further. And the rise in oil prices made agricultural commodities more expensive, as modern agriculture-very intensive and mechanized-suffered under higher fertilizer and transportation costs. These factors combined to drive agricultural-commodity prices to record levels.

All this is leading to waves of food-price crises, each one impacting and compounding the next. The rise in prices began to reach crisis proportions as early as late 2006, when rising biofuel demand pushed corn prices up. Prices of other cereals, particularly wheat and barley, jumped too, propelled by a drought in Australia. Making matters worse, a gradual change in agricultural policies in rich countries, mainly the United States and the European Union, had a major impact. There, reduced levels of subsidies have led to lower agricultural surplus production.

A second wave of food inflation arrived in mid-2007, when agricultural commodities reached fresh record highs, prompting the first warnings from UN agencies like the FAO and WFP. The main driver of last year's rise in prices was bad weather, which severely damaged the global wheat crop. Plus, the world was at that point consuming more food-either for feeding humans or animals, or conversion into fuel-than it was producing, and prices reflected that simple fact. At first, though, policy makers blamed speculation in the commodities markets. In response, some countries, such as India, went as far as banning futures trading in certain commodities, including rice, wheat and pulses. But prices have continued to rise in spite of the futures-trading bans, suggesting that fundamental factors, such as higher demand and lagging supply, were behind the price jump, rather than financial speculation.

But it is countries' responses to the crises that are making real food shortages more dangerous. Precisely these unhealthy reactions from states like India drove the third-and, so far, last-wave of food inflation. It started in late 2007 and early 2008, as price increases in staples triggered a sharp response from agricultural-commodity-producing countries. They first imposed export restrictions like high tariffs or minimum export prices. Later, as the price of key agricultural commodities like rice-the staple food for almost half the world's population, whose price has, in the past, proven capable of ruining governments-continued to increase, they turned the restrictions into outright trade bans. The extension of these bans sparked panic buying by importing countries, setting off even-sharper price increases.

Food inflation, on average, appears to have peaked during the spring, with wheat prices declining to a six-month low, soybeans down sharply from record highs, and the price of sugar and dairy products well below their peaks-though it is expected that the price of some commodities, such as corn, could rise further because of the unrelenting rising demand of the biofuel industry. Even if average food inflation has indeed already hit its ceiling, prices are expected to remain high by historical standards and could easily spike again at any sign of bad weather. We now live in a world with an oversensitive and at-risk food market.


WHAT MAKES this all particularly dangerous for global security is "the new face of hunger," as termed by the head of the WFP. The current crisis is hitting the urban poor the hardest, rather than those living in the countryside. And this new face means greater political repercussions and a higher risk of political instability in developing countries; urbanites are better organized than rural farmers and can easily demonstrate against their governments by taking to the streets of their countries' capitals. So states are likely to try to regain social peace and maintain their political power through increased spending-be it higher salaries or subsidies-that favors poor urban populations, instead of investing in long-term economic productivity. The trade-off will be political stability in exchange for lower economic growth as the investment infrastructure and education necessary to sustain economic prosperity will be missing. Egypt, for example, spends more on food and fuel subsidies than on education. States need to create targeted safety nets for poor people-in particular programs such as at-school meals that usually help maintain attendance-while continuing to invest in long-term economic productivity.

The effect of all this is that countries are trying to protect themselves, their markets and their supplies to avoid further domestic upheaval, and yet another and deeper wave of food-scarcity panic. But efforts to hedge at home have broader implications. Along with international instability, government policies are leading to disruptions of global trade, a cornerstone of the post-cold-war international-relations system.

Much of the damage from protectionist policies is already done, but it's going to get worse because of states' domestic focus, export bans, food subsidies and the hoarding of commodities. These trends will have a negative impact on global foreign policy, as they will drive states apart, rather than unite them, making cross-border conflict over food more likely.

Rejecting international trade as a solution to hunger, championing instead a vision of impossible local food self-sufficiency, is just plain wrong. It will not remedy the crisis; and it will further complicate short-term supply shocks because countries will not be able to rely on the global market to meet temporary needs. After states turn inward, the global trade of food remaining on the market is likely to become more opaque as governments enter into bilateral trade agreements like the ones recently reached between India and Sri Lanka, Ukraine and Libya, likely China in Africa, and the United Arab Emirates and Pakistan. Those agreements, away from the private sector, are obscure and lack proper oversight, and in may ways only replicate the tried-and-true colonialist model in which the metropolis uses the colony to ensure its food security. A return to food colonialism, dressed as investment, would only complicate resolution of the crisis.

Essay Types: Essay