Food prices continue to rise on world grain shortage

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Food makers and ingredients firm across the world are currently
affected by the rising world price for basic food commodities. In
each of the last four years world grain production has fallen short
of consumption, forcing a drawdown of stocks for wheat, rice, corn
and soybeans. Lester R. Brown at the US-based Earth Policy
Institute predicts food prices will likely be higher in the
second quarter as soybeans have recently hit 15-year highs and
wheat and corn 7-year highs.

When this year's grain harvest begins in May, world grain stocks will be down to 59 days of consumption-the lowest level in 30 years, writes Lester R. Brown in the following article.

The last time stocks were this low, in 1972-74, wheat and rice prices doubled. Now, a generation later, a similar scenario is unfolding. After nearly tripling from 1950 to 1996, growth in the world grain harvest came to a halt. In each of the last four years world grain production has fallen short of consumption, forcing a drawdown of stocks.

During this period, expanding deserts, falling water tables, crop-withering temperatures, and other environmental trends have largely offset the positive contributions of advancing technology and additional investment in agriculture.

Prices of basic food and feed commodities are climbing. Wheat futures for May 2004 that traded as low as $2.90 a bushel within the last year on the Chicago Board of Trade have recently topped $4 a bushel, a climb of 38 per cent. A similar calculation shows the price of corn up by 36 per cent, rice up 39 per cent, and soybeans doubling from just over $5 per bushel to over $10 a bushel.

Rises in the price of wheat and rice (the world's two basic food staples) and corn and soybeans (the principal feedstuffs) are contributing to higher food prices worldwide, including in China and the United States, the largest food producers.

In China, where grain prices are 30 per cent above those of a year ago, the National Bureau of Statistics reports that retail food prices in March were 7.9 per cent higher than in March 2003. The price of vegetable oil is up by 26 per cent, meat by 15 per cent, and eggs by 19 per cent.

All countries are affected by the rising world price of basic food commodities. The American Farm Bureau marketbasket survey, which monitors US retail prices of 16 basic food products in 32 states, shows a 10.5 per cent rise in food prices during the first quarter of 2004 over the like period in 2003.

Price rises range from a 2 per cent rise in the price of milk to a 29 per cent rise for eggs. The price of vegetable oil, up 23 per cent, is beginning to reflect the doubling of soybean prices. Meat prices are up across the board. Bread and potatoes were up 4 and 3 per cent respectively.

Still higher food prices are likely in the second quarter as soybeans have recently hit 15-year highs and wheat and corn 7-year highs. Prices of livestock products that require large amounts of grain are particularly sensitive to higher grain prices.

By contrast, bread prices do not usually rise much because wheat typically accounts for less than one-tenth the cost of a loaf of bread. Even a doubling of wheat prices would not greatly increase bread prices.

Food prices are rising almost everywhere. In Russia, bread shortages pushed the price of bread in February up 38 per cent compared with February 2003. This so alarmed the government that it restricted wheat exports by imposing an export tax of €35 per ton.

In South Africa, corn futures prices have climbed in early 2004. The price of white maize, the principal food staple, rose by more than half between December 2003 and January 2004. Yellow maize, used mostly for livestock feed, climbed by 30 per cent during the same period.

Higher prices reflect sagging production in the face of soaring demand as the world continues to add more than 70 million people a year and as incomes rise, enabling more of the world's people to consume grain-based livestock and poultry products.

Growth in world grain production is lagging behind the growth in demand largely because environmental trends, such as spreading deserts, falling water tables, and rising temperatures, are shrinking harvests in many countries.

China is the first major food producer to face reduced harvests partly because of expanding deserts and aquifer depletion. Some 24,000 Chinese villages have either been abandoned or have had their farm economies seriously impaired by invading deserts. In the arid northern half of the country where most of the wheat is grown, tens of thousands of wells go dry each year.

These environmental trends, combined with weak grain prices that lower planting incentives, shrank the harvest from its peak of 123 million tons in 1997 to 86 million tons in 2003, a drop of 30 per cent.

Perhaps the most pervasive environmental trend that is shrinking grain harvests today is rising temperature. When the US Department of Agriculture released its September 2003 monthly world crop estimates, it reduced the projected world grain harvest by 35 million tons from its August estimate. This drop, equal to half the US wheat harvest, was due almost entirely to the intense August heat wave in Europe, where crop-withering temperatures shrank harvests from France in the west through the Ukraine in the east.

In 2002 record heat and drought combined to shrink harvests in both India and the US. Record and near-record temperatures in key food-producing countries accounted for a large share of the record world grain shortfalls of 91 million tons in 2002 and 105 million tons in 2003.

The question now is whether farmers can expand the grain harvest this year enough to eliminate the huge deficit of last year. Unfortunately there are no efforts underway that are sufficient to reverse the expansion of deserts, the fall in water tables, or the rise in temperatures that are shrinking harvests in key countries. In the absence of such an effort, food prices are likely to continue rising.

Reprinted with kind permission from the Earth Policy Institute​.

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