Ali’s blog

Mostly quant stuff with occasional digressions

Food shortages

Posted by alifinmath on February 26, 2008

In the Guardian today:

“This is the new face of hunger,” Sheeran said. “There is food on shelves but people are priced out of the market. There is vulnerability in urban areas we have not seen before. There are food riots in countries where we have not seen them before.”

WFP officials say the extraordinary increases in the global price of basic foods were caused by a “perfect storm” of factors: a rise in demand for animal feed from increasingly prosperous populations in India and China, the use of more land and agricultural produce for biofuels, and climate change.

The impact has been felt around the world. Food riots have broken out in Morocco, Yemen, Mexico, Guinea, Mauritania, Senegal and Uzbekistan. Pakistan has reintroduced rationing for the first time in two decades. Russia has frozen the price of milk, bread, eggs and cooking oil for six months. Thailand is also planning a freeze on food staples. After protests around Indonesia, Jakarta has increased public food subsidies. India has banned the export of rice except the high-quality basmati variety.

“For us, the main concern is for the poorest countries and the net food buyers,” said Frederic Mousseau, a humanitarian policy adviser at Oxfam. “For the poorest populations, 50%-80% of income goes on food purchases. We are concerned now about an immediate increase in malnutrition in these countries, and the landless, the farmworkers there, all those who are living on the edge.”

Much of the blame has been put on the transfer of land and grains to the production of biofuel. But its impact has been outweighed by the sharp growth in demand from a new middle class in China and India for meat and other foods, which were previously viewed as luxuries.

“The fundamental cause is high income growth,” said Joachim von Braun, the head of the International Food Policy Research Institute. “I estimate this is half the story. The biofuels is another 30%. Then there are weather-induced erratic changes which caused irritation in world food markets. These things have eaten into world levels of grain storage.

The impact of climate change will amplify that already dangerous volatility. Record flooding in west Africa, a prolonged drought in Australia and unusually severe snowstorms in China have all had an impact on food production.

“The climate change factor is so far small but it is bound to get bigger,” Von Braun said. “That is the long-term worry and the markets are trying to internalise it.”

The underlying causes — more grain for livestock, use of biofuels, and climate change — are not going to go away. The real price of food is going to rise inexorably. I’ve never believed that the price mechanism rationally allocates resources in the real world (it always works to the advantage of the rich and powerful), and governments are having to circumvent it with subsidies and rationing. The influence of traders and speculators will possibly have to be reined in in the years to come — *shrug* — difficult to know how this will play itself out. Food shortages will add fuel to the fire of political “extremism,” and we’re all looking at a bleaker and more volatile future.

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