Veronica Brown London
Attempts by major food importing nations to shelter their populations from the effects of a US drought may make a bad situation worse, five years after the last jump in crop prices provoked rioting in some of the world’s most fragile states.
Many governments have watched on the sidelines as drought in the US farm belt sent prices of maize, soya beans and wheat soaring, hoping that the market would eventually ease.
However, their nerve seems to have broken with Mexico, the second-biggest maize importer, which suffered “tortilla riots” in 2007, making a huge purchase last week.
With fears growing that drought will also cut the wheat harvest in the Black Sea region, buyers in the turbulent Middle East are now also pouring on to the markets.
A cascade effect is not inconceivable and may well be taking place – wheat prices have shot up nearly 50 percent since the beginning of July,” said J Peter Pham, a director with the Atlantic Council, a US think tank.
“If such proves to be the case, some of the most fragile states may well be shaken.”
In 2007 and 2008, food prices rose when a jump in oil prices – which pushed up production costs – mixed lethally with speculation on commodity markets and export restrictions imposed by some leading agricultural nations.
The resulting food emergency hurt the world’s poor worst, provoking unrest from Egypt to Mozambique and Mexico. However, prices soon crumbled spectacularly as the global economy slowed, oil fell again and markets bet on lower demand for commodities.
This time around the problem is simpler, some have argued, blaming the drought in the US, a leading world producer of maize, wheat and soya beans.
Global grain prices saw a fierce rally in June and July, with maize and soya bean prices rising 50 percent and 20 percent, respectively. Wheat also jumped about 50 percent owing to the worst US drought in more than half a century.
Last month was the hottest month in the continental US on record.
Analysts expect this year’s drought, the worst since 1956, to yield the smallest maize crop in five years.
The effects are profound, as maize is not only used directly for making food. It is also fed to livestock for meat production and used to make ethanol, demand for which is strong as governments try to meet biofuels targets.
Several bodies, including humanitarian agencies, governments and food companies, concluded that the latest price surge was not as serious as in 2007 and 2008.
Earlier this year the UN food agency played down the problem, but on Thursday it acknowledged the risks.
“Prices have the potential to increase further,” said the Food and Agriculture Organisation’s (FAO) senior economist, Abdolreza Abbassian.
The FAO food price index, which measures monthly price changes for a food basket of cereals, oil seeds, dairy, meat and sugar, was up 6 percent in July from June, after three months of declines.
Wheat output is also looking shaky as drought blights large producers such as Russia, Ukraine and Kazakhstan, and raises the risk that they might impose export bans to hold down prices on their home markets.
Governments in large importing countries, which were shaken by unrest last time, had held off from making major purchases of grain as prices bubbled, but now they are jumping back in to keep their stocks healthy and their populations satisfied.
The Mexican government, keen to avoid a repeat of the tortilla riots, has tried to secure lower maize prices by purchasing in bulk, buying a massive 1.516 million tons last week.
However, dealers say the Mexican tactic could touch off a frenzy of buying by other countries wrongfooted by the US drought. Iran, Algeria and Jordan are all shopping for grain this week.
One notable absentee so far is leading wheat buyer Egypt, which snaps up more than 10 million tons a year.
Pham noted that Egypt, which is still experiencing tensions following last year’s revolution, gets a quarter of what it consumes from the US. – Reuters