Food Riots – 2008
In 2008, there were wide spread riots as people around the world protested the rising cost of food. Bangladesh, Egypt, Indonesia, India, Senegal, Somalia, Yemen Cameroon and Burkina Faso all experienced some type of riot attributable to the rising cost of food.
It is worth briefly mentioning the 2008 riots in two countries, Haiti and the Ivory Coast. In the case of Haiti, the country’s Senate voted to remove the Prime Minister after its food riots. Food items such as fruit, beans, rice and condensed milk had risen up to 50 percent. Fuel costs had nearly tripled in two months. The Ivory Coast experienced food riots after the price of beef rose from US $1.68 to $2.16 per kilogram in a mere three days. Also during this three-day period, the price of gasoline rose from US$1.44 to $2.04 per liter.
Between the years 2006 and 2008 the average world price for food commodities rose significantly. Rice prices rose 217 percent. Notably, rice rose to $0.24 per pound in April 2008 thereby doubling in price in seven months. Also during this period wheat prices rose 137 percent, corn prices rose 125 percent with soybean prices rising 107 percent.
It is worth noting that in February 2008, US stockpiles of wheat reached a 60-year low.
2011 Food Commodity Prices
The world stage could now be set for additional food riots. Last year (2010) the price of corn rose 52 percent, wheat was also up 47 percent and soybeans were up 34 percent. Cattle futures tied an all time high on January 13 and coffee future’s prices reached a 13-year high. It even looks like the price of rice may finally be rising with a 3.6 percent increase recently. In the past 12 months, the Standard & Poor’s Agriculture Index rose 52 percent, primarily led by price increases for cotton, corn and wheat.
According to the United Nations, world-wide, food costs increased 25 percent in 2010 to an all time high in December. It was also estimated that countries spent $1 trillion on imports last year. However, this expenditure was not equally distributed. The US Department of Agriculture stated that retail food prices rose (in the US) a mere 1.5 percent in 2010. The UN estimates that food prices have risen as much as 20 percent in the poorer nations of the world. The UN food index monitors the price of 55 different foods. This index is now higher than it was in 2008.
Market expectations are for continued increases in agricultural products. A December Bloomberg survey of analysts, traders and investors predict an additional 16 percent increase for wheat in 2011. Sugar, corn, soybeans, coffee and cocoa are all expected to gain as well.
Certainly, one of the causes for the large increases in food prices in 2008 was attributed to the increased costs of fuel, notably oil and natural gas. These fuels are used in the manufacture of agriculture fertilizer as well as food transportation and industrial agriculture.
On Jan 1, 2007 a barrel of oil was trading at $50.51. By July 3, 2008, a barrel of oil peaked at $145.31. It is not surprising that this period of rising oil prices put upward pressure on food prices resulting in the riots of 2008. By December 13, 2008, oil prices had dropped back to 30.28 a barrel. Not surprisingly the food riots had begun to abate. However, oil prices have returned to the low $90 price range. And we are now beginning to see food riots.
Natural gas also has a similar story. On December 27, 2007 natural gas was priced at $5.84. However, by July 3, 2008 it had risen to $13.58. It seemed to move in lockstep with the price of oil. And, just like oil, it proceeded to sell of reaching a low of $2.51 on September 3, 2009. However, natural gas has now risen back into the mid $4 range.
Additional rising energy costs could be the underlying support for additional rises in food prices.
Retail Food Prices
The rising costs of food have also put pressure on manufactures and retailers to increase their prices. Kraft Foods, the second largest food company in the world, raised US prices for Maxwell House and Yuban coffee three times last year. General Mills has already announced that it will raise prices for some of its cereal products.
Starbucks has already announced that it will raise prices for some of it’s products due to price increases for coffee and milk. Domino’s Pizza has announced price increases due to a 29 percent increase in the cost of cheese. Even Wendy’s has announced that it will be raising prices in some stores (as some agricultural prices, such as corn are a prime ingredient of livestock feed).
During a conference call on January 11, the CEO of SuperValu (which includes Save-A-Lot and Cub Foods stores) expects that most of its price increases could be in the “lower single-digit range”. However, there could be “double-digit increases” for several of its commodity items.
The Impact of Natural Disasters
Natural disasters can also play a large part in the availability of food. Myanmar’s exports of rice have dropped over the past 40 years from almost 4 million tons to about 40,000 tons. In fact, on May 3, 2008, the cyclone named Nargis decimated Myanmar’s rice growing cropland. The area was saturated with salt water. The impact was devastating as the UN Food and Agriculture Organization estimates that these areas produced 65 percent of the country’s rice.
Laying aside the flooding of the past several years (Canada, China, Australia) and other natural disasters (Russia, Europe, Argentina – the 40 percent harvest reduction in Russia due to a heat wave was particularly destructive), it doesn’t look like the forecast for 2011 is any better.
Brazil is currently suffering through massive rain and corresponding mud slides. The region around Petropolis, Teresopolis and Nova Friburgo has already seen its heaviest rainfall since 1967. This rainfall could lead to food shortages (and resultant higher prices) as this region supplies between 40 – 60 percent of the vegetables and dairy products for Rio de Janeiro.
Widespread flooding in Australia could also have an impact. Warwick McKibbin, member of the central bank’s policy board, said, “If you look at the infrastructure damage and all the networks that have been broken, a hit to the economy of 1 percent is not out of the question.” Undoubtedly, some of that could have an impact on food production and prices.
It looks like Argentina’s agricultural crop may also get hit hard. This year, Argentina is projected to be the world’s second largest corn exporter and third-largest soybean exporter. However, due to La Nina weather effects, their harvest could be much less than expected.
As Elwynn Taylor, an Iowa State University Extension climatologist said, “They have legitimate concerns about drought and reduced crop prospects in Argentina for 2011. They’re starting to lose yield as they’re entering the equivalent of what is our July, they have corn silking and pollination starting in some places. Argentina is at a critical point. In Iowa if we go through June dry and head into July, we would be in trouble. That’s what Argentina is experiencing now. They’re moving into the equivalent of our July and some places in Argentina are in trouble.
“We can’t give an estimate yet of what this will mean for yield in Argentina this year but we can give an estimate of what it means for risk. They’re running the risk of having a 20% reduction in corn yield from what they’ve harvested in the past couple of years. It could get worse. A 40% reduction isn’t in the forecast yet, but a 15% to 20% reduction is already there.”
Not all agriculture disasters are “acts of God.” The agricultural costs of protecting the Delta Smelt in California have been disastrous. In fact, Investor’s Business Daily recently ran an OpEd about the Fresno area. Here’s a part of the article posted on their website 12/28/2010:
Environmentalism: Fresno, Calif., stands as the de facto capital of California’s mighty Central Valley, the breadbasket of America. So why is that city preoccupied with winning a $1 million prize to stave off hunger?
Local newspapers and Fresno County officials are trying to rally Facebook users to vote for Fresno in a corporate contest sponsored by Wal-Mart for $1 million in charity food donations for the hungry. Fresno, a city of 505,000, has taken the national lead because 24.1% of Fresno’s families are going hungry.
Civic spirit is good, but something big is wrong here. Fresno is the agricultural capital of America. More food per acre in more variety can be grown in the fertile Central Valley surrounding this community than on any other land in America — perhaps in the world.
Yet far from being a paradise, Fresno is starting to resemble Zimbabwe or 1930s Ukraine, a victim of a famine machine that is entirely man-made, not by red communists this time, but by greens.
State and federal officials, driven by the agenda of environmental extremists, have made it extremely difficult for the valley’s farms, introducing costly environmental regulations and cutting off critical water supplies to save the Delta smelt, a bait fish. It’s all driving the economy to collapse.
In the southwest part of the Central Valley, water allotments as low as 10% of normal have created a visible dust bowl. The knock-on effect can be seen in cities like Fresno, where November’s unemployment among the packers, cannery workers and professional fields that make agriculture productive stands at 16.9%.
Other Central Valley cities such as Hanford-Corcoran, Merced, Modesto, Stockton and Visalia-Porterville have similar jobless numbers, the highest in the country. The Wal-Mart Foundation notes that “24.1% of families in this community (Fresno) cannot afford regular meals compared to a national average of 9.2%.”
That’s right — a community that supplies a quarter of America’s fruit and vegetables is begging for food. City officials and the media seem oblivious to this irony. “Even if Fresno doesn’t finish first (in WalMart’s Facebook contest) the fight against hunger will still come out a winner,” the Fresno Bee crowed, citing publicity.
Additionally, the political process plays a part in total food production. For example, on April 9, 2008, the New York Times reported that the US government was paying farmers to idle their cropland. In 2007 there were 36,800,000 acres of idled cropland in the US. This translated to 8% of cropland in the US – an area bigger than the state of New York.
Food Riots Return – 2011
Food riots are beginning to be seen again. This month saw protests in Algeria over the rising costs of milk and flour. Three people were killed and 420 injured in the protests.
A part of the issues surrounding the political unrest in Tunisia are related to food. In the month before handing over power, Tunisian President Zine El Abidine Ben Ali had tried to lower prices for bread, milk and sugar.
Other countries are taking proactive steps to address food price increases and (hopefully) ward off food riots. Serbia has announced it will consider an export duty on wheat to discourage exports. South Korea said it plans to increase food supply to reduce food prices. India has ceased onion exports after prices more than doubled last year. China has begun selling such commodities as sugar and corn from strategic reserves last year.
Finally, it is worth considering what Philippe Gijsels, the head of research at BNP Paribas Fortis Global Markets has said recently, “In countries where [sic] 70 percent to 80 percent and sometimes more of a family’s budget goes to food, explosive price rises risk to destabilize these societies.”