In the past, bad weather, like a monsoon failure in India, a drought in the former Soviet Union, or a heat wave in the U.S. Midwest, tended to dictate the price spikes.
Today’s price hikes, however, are not just driven by dry spells and other extreme weather changes, but also on the growing demand of an increasing population.
The United Nations Food and Agriculture Organization has warned that the world’s population is growing faster than expected and predicts it will hit seven billion by the end of this year, warning further that the population could triple by the end of this century, exacerbating problems of access to food and clean water especially in Africa.
With this year’s harvest predicted to fall short, the governments in the Middle East and Africa, or even some countries in Asia, are in a tensed mode as a result of the price spikes. With anxious markets sustaining one shock after another, food is quickly becoming the hidden driver of world politics.
US Secretary of State Hillary Clinton warned that global shortages of food and spiraling prices threaten widespread destabilization. She told a UN Food and Agriculture Organization (FAO) meeting urgent steps are needed to hold down costs.
Alex Magno, a professor in the University of the Philippines says “We are now facing a food emergency that requires the extraordinary exercise of economic leadership by governments. Policies and state investments need to be revised with urgency to mitigate the calamitous effects of food inflation on the world’s poor.”
The U.N. Food Price Index as of March 2011 has already eclipsed its previous all-time global high.
For the world’s 2 billion poor people, who spend 50 to 70 percent of their income on food, these skyrocketing prices would mean eating only one meal instead of two meals a day.
A doubling in the world price of wheat may not mean so much in the United States, but if you live in India, that's already twice too much. This would also be the case in Indonesia or the Philippines. If the world price of rice doubles, so does the cost of the bowl of boiled rice on a Philippine family’s dinner table.
But an increased population, or even extreme weather, may not be the only factors that has driven this food crisis. According to Frederick Kaufman, there is one main culprit: Wall-Street.
Market speculation, which rides on the basic convention of buying low and selling high, used to play a welcomed role in the marketing of agricultural food products, insulating farmers from the natural volatility of the industry as the price of grain was agreed upon even before the wheat was grown.
But all of that changed when the Commodities Futures Trading Commission deregulated future’s markets in 1999. Suddenly, food commodities were treated like they were stocks, where bankers could expect new influxes of ready cash.
Matthew Lynn, the author of “Bust,” a book on the Greek debt crisis, says that speculation in commodities isn’t like trading in financial instruments. People don’t eat stock shares. They don’t need Treasury bills to keep their factories running. The prices of those instruments can jump around like crazy without it affecting people’s lives. But when the price of wheat soars, it makes a big difference. Some people can’t afford to eat anymore because food is too expensive.
Kaufman said that the volatility in the food markets has instead “made nervous countries respond with me-first policies, from export bans to grain hoarding to neo-mercantilist land grabs in Africa. And efforts by concerned activists or international agencies to curb grain speculation have gone nowhere. All the while, the index funds continue to prosper, the bankers pocket the profits, and the world’s poor teeter on the brink of starvation.”
This crisis is not a mere crumb we can dust off from our tables. It needs to be put on the world leaders' agenda. And it needs a solution. Fast.