Will there be a global food crisis in 2013?

JOHANNESBURG, 16 January 2013 (IRIN) - Drought last year devastated much of the maize crop in the US, the world’s biggest maize exporter, driving prices of the staple cereal to record levels.

While food experts did not anticipate the rising prices would trigger the kind of crises seen in 2008 and 2011 - when the world faced structural deficits in the more widely consumed staples wheat and rice - they are concerned about the ability of the world's poorest people to feed themselves.

Cereal prices have declined by a modest 2.4 percent, largely the result of lower demand as economies stagnate, the Food and Agriculture Organization (FAO) reported last week. But we are already in an era of high prices. The price of wheat was more than 20 percent higher in October 2012 compared to the same period in 2011, according to FAO.

IRIN - with the help of food experts, the most recent reports from FAO and the US Department of Agriculture (USDA) - reflects on the global food situation in 2012 and the outlook for 2013.

Will 2013 be a crisis year?

Thus far in 2013, drought has persisted in almost 19 percent of the US. Poor rains over the autumn/winter period in big farming states like Kansas and Oklahoma are affecting wheat, which is a winter crop. Even so, some experts say it is too early to forecast how this will affect global food security.

"Any new failure of a maize harvest could see prices doubling quickly. It may take another couple of years of regular harvests before those stocks rise to levels that give sufficient insurance against occasional shocks"

Abdolreza Abbassian, secretary of the Intergovernmental Group on Grains at FAO, said he does not expect the US drought to have a huge impact on global supplies of wheat yet, "but should we record another climatic shock in Russia, then we could be in trouble." He said a clearer picture will emerge in February during the Northern Hemisphere spring, when details of how much grain each of the major producers will be selling becomes available.

But other experts see things differently. Steve Wiggins, development and agriculture expert at the Overseas Development Institute (ODI), a UK-based think tank, told IRIN in an email, "Do we not have a food price crisis? Prices are high. Prices of maize and wheat leapt up in mid-2012 when it was clear just how bad the US maize harvest might be, adding US$50 a ton or more to the prices… Prices are 50 percent or more higher than they used to be."

Even so, he said, "we expect farmers to be planting large areas and piling on fertilizer and other inputs to get big harvests… If there are no major harvest failures, then by this time next year, maize and wheat prices may have fallen back by US$50 a ton or more; perhaps even rice prices may fall somewhat… But if we do have problems, and especially for maize, there’s not much slack in the system."

The USDA has pointed out that heavy rains in Argentina and Russia have affected wheat crops, and production estimates have been revised downwards.

And maize stocks remain low. "Any new failure of a maize harvest could see prices doubling quickly. It may take another couple of years of regular harvests before those stocks rise to levels that give sufficient insurance against occasional shocks," Wiggins said.

He reckoned the impact of 2007-2008 food price shock has not "fully unwound. I expect prices to fall back somewhat over the next two or three years, for the simple reason that the many farmers in the world who have any spare capacity have to be motivated by current price levels to go for bumper harvests. It’s not that hard to raise production by another 5 percent to 10 percent if the price is attractive enough. Right now, maize and wheat prices look very rewarding. "

Was there a crisis in 2012?

The experts agree that a global food price shock was averted in 2012. Lower demands for grains helped push down global prices, preventing them from spiralling out of control.

The world avoided a repeat of the crises of 2008 and 2011 because the ratio of grain stocks against demand was not as high as in those earlier years, Christopher Barrett, a professor of applied economics at Cornell University in the US, told IRIN via email. Existing stocks of cereals across the world were able to absorb the US drought-induced shock and other disruptions, he added.

"But also maize - the grain that led the price rise of 2012 - is quite different from rice and wheat - which led the 2008 and 2011 spikes, respectively,” he said, explaining that a great deal of maize is used industrially, such as for livestock feed, ethanol and corn syrup, and companies are better equipped to find substitutes than consumers.

Barrett added that major maize-trading countries’ governments "are less likely to enact policies like the rice exports bans of 2007-2008 or the wheat export bans of 2010-2011, or the Philippines’ procurement contract of 2008,” moves that exacerbated those earlier crises.

ODI’s Wiggins reasoned that "things didn’t get worse in 2012 because, fortunately, the US maize crop failure was pretty much the only major shock of the year, while farmers the world over have been planning for bumper harvests, so production has been quite high, even allowing for the US maize harvest".

Cheaper maize offered by competitors - mostly from the Ukraine - has made its way to traditional US markets like South Korea and Japan, pointed out USDA.

"High food prices may no longer have the shock impact that they had back in 2008. Adjustments have taken place,” said Wiggins. “In some fast-growing countries, wages are higher than they were, for example. Other adjustments may have taken place,” he said, citing as examples “people switching to lower-cost staples, wasting less food, [and] finding ways to adjust household budgets so that staple food consumption holds up”.

"Yet in other cases,” he continued, “one fears that hardship is being borne in silence. Price shocks are no longer that newsworthy, and we collectively slump towards the sense of ‘that’s just the way things are’." (IRIN News)

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The Global Economic Crisis

The Global Economic Crisis

Question: Where does the global economic crisis currently stand, which began in the USA and engulfed Europe and then the world? Answer: To shed light on this subject, we will mention the following: 1. The collapse of the real estate market in the US spread across the world resulting in the collapse of many banks, which lead to unprecedented government intervention to halt global economic collapse. The result however, was what is now called the Great Recession, the worst since the Great Depression in 1929. The global financial crisis brought to light the fact that the boom of the preceding decade was in reality driven by debt; and after five years the world's largest economies continue in their failure to resolve this. 2. United action was attempted by the world's largest economies in order to coordinate a resolution to the crisis. This was argued on the basis that the global economy is interlinked due to the effects of globalisation. Thus, a collective and global approach would be in the world's best interests. This unified approach did not last long as economic nationalism - where each country fights for its own survival spread, where each nation expected other nations to fund a global reserve. Various meetings and conferences of the G20 agreed different types of bailout funds to help grieved economies, how this was to be funded led to most of the bailouts to never move forward from the paper they were written on. This was due to the concept of economic nationalism of the super-powers. "The Economist" highlighted in 2010, "But the re-emergence of a spectre from the darkest period of modern history requires a different response, even serious. Economic nationalism that strives to save jobs and capital at home turned the economic crisis into a political one and threatened the world with depression. If it is not buried again forthwith, the consequences will be dire." 3. Stark exchanges between the Germans and the Americans have taken place on the best route for the future of the global economy. Angela Merkel, along with the majority of the other countries suggested that the unsustainable growth model of the US, fuelled by the cheap credit and debit/loans, from the governments' perspective using funds as stimulus for growth is obsolete. The European approach has manifested in the need to control the national deficit through austerity measures. Austerity measures are typically taken if there is a threat that a government cannot honour its debt liabilities. This is a very specific objective and different to economic growth. With the threat to the credit ratings of most of the world's largest economies, many have resorted to austerity i.e. reducing the government deficit to please the financial markets. The problem with the austerity approach is that such a policy is not actually geared towards growth, which would create jobs and income for society, and accordingly lead to overall economic growth, but towards cutting the government debt. 4. The US approach of seeking to stimulate the growth has fared no better. This is because stimulus requires increasing government spending using funds borrowed primarily from abroad in the case of the US from countries such as China, or funds simply created by central banks literally by entering digits into a computer. Any stimulus was always a high-octane boost and a temporary measure. They are designed to kick-start stalled economies, not to fuel sustained economic growth. The growth that has been achieved is really the inflated results of stimulus measures achieving their intended effect to be temporary. Hence stimulus just props up government and service industry jobs which die off when the stimulus ends, leaving an economy in much the state it was when the stimulus started. 5. Western governments also resorted to Quantitative Easing (QE), a new development which was an electronic method of printing money. This unconventional policy was used by central banks (governments) to stimulate the national economy when conventional policy had failed. Accordingly, central banks started to implement the so-called Quantitative Easing (QE) through buying financial assets, such as bonds in order to inject a pre-determined quantity of money into the economy. This is achieved by purchasing financial assets from banks with new electronically created money. This action increased the reserves of banks. However, the global economy at the start of 2013 is not better than it was at the start of 2012. Rather the great recession has eaten away some of the States that tried to avoid falling into the recession. Reports have emerged as soon as 2013 began about the possibility of Britain going into a triple dip recession, due to its debt burden going into the trillions Thus, the QE approach ended up in reality with no effective result. After 5 years of economic crisis, the global economy is still reeling and with unemployment constantly increasing social chaos has already begun in Europe. All attempts to solve the crisis have not dealt with debt fuelled growth, whilst debt caused the problem more debt was thrown at it, Western governments attempted to treat the patient with the disease itself. 6. Finally, there are three possibilities that may eventually lead to economic recovery; we mention them from the least to the best: First: The first is the double-dip recession turns into a depression, prices hit rock bottom and this leads to property, loans and commodity prices being seen as cheap and this kick starts economic growth as such assets are then purchased. This is a weak possibility because the Capitalist economy is primarily based on loans and interest (riba) that results from them. The decline of loans prices (riba) do not live long as long as capitalist economy continues. Second: The second possibility is China bails out the West. China's vast trade and financial surpluses are causally linked to the unsustainably large debts of the US, UK and a swathe of the Eurozone. It would be in their interests to bail out the West. This would also mean the Western world will have to accept Chinese global leadership. Here the issue is not whether the West will accept such a bailout but rather will China pursue such a policy. Third: The Khilafah State shines on the world, and the Islamic economic system starts to be implemented. Then, not only will the Muslims benefit, but rather all the world that will deal with it. This would make such global crises disappear or bring it under control. (Ends/)

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