This post in The Mail from Accra, Ghana, carries the following report: “The Global food prices rose for the eighth straight month in February, the United Nations Food and Agriculture Organization (FAO) reported today, while also warning that unexpected spikes in oil prices could exacerbate an already precarious situation in food markets.”
According to Chuck Colson’s latest Breakpoint commentary:
If you ask the average American what lay behind the recent revolts in Tunisia and Egypt, you are likely to hear words like freedom, democracy, and even Facebook and Twitter. A word you probably won’t hear is food. But just as much as social media, what brought people onto the streets of Tunis and Cairo was food: too little of it at too high a price.
This apparently causal relationship between food prices and unrest works both ways. The uprisings in the middle east and north Africa are themselves driving up the price of oil. Gas here in Hamilton is up to $1.22 (CDN) a litre, with the Canadian dollar, which is a petro-dollar, worth slightly more than its US counterpart.
This rise in the price of oil will in turn lead to a further rise in food prices, as the cost of transporting food goes up. We wealthy westerners can generally afford to bear these prices by cutting back our discretionary household spending, but people elsewhere in the world cannot do this as easily. If food prices rise further, we could be in for more political turmoil around the globe.
Can we do anything about it? Colson believes we might transfer valuable agricultural land away from ethanol production to the production of foodstuffs. This could put more food on the market and lower costs for everyone. On the other hand, would a drop in ethanol production lead to more demand for oil, thereby driving up the cost of gasoline at the pump and further increasing transportation costs for food? Either scenario appears to have its downside. Our economists obviously have their work cut out for them.
March 7th, 2011 | 12:07 pm | #1
It is not economics so much as politics and if keeping fuel prices down for Americans means the rest of the world goes on a diet, well, the politicians know where the votes are. And they are not in the rest of the world.
March 7th, 2011 | 2:31 pm | #2
Well, North Americans could eat less food, use less energy, and farm with more effective and less wasteful agricultural practices. :)
March 8th, 2011 | 9:35 am | #3
I think we should take a break from our self loathing and look at what has happened these last 2 years.
First of all, it was about 4 years ago when oil prices were surging, the dollar was dropping, and President Bush signed into law new ethanol mandates. This was at the tail end of Greenspan’s QE and low interest rate era and there was plenty of cash and profits everywhere. People had cashed out thier home equities, demand for consumer goods was at record highs and China was importing record amounts of energy. By the middle of 2007 Bernecke had just finished with his 5th interest rate hike. He certainly popped the real estate bubble, as by Dec 2007 the US was in recession. It took another 8 months for the losses in the derivatives market to hit home. But oil/fuel prices peaked in June 2008 and plunged when it became obvious that demand in North America was falling. And with the sell off in oil was a huge sell-off in corn, wheat, rice, and cotton. The 2007 riots in Mexico and Indonesia fell off in 2008 when food prices dropped like a rock.
But since 2009, the US has followed a policy of cheap money (negative interest rates), QE (printing of money) and huge federal defecit spending. I predicted then that before 2012 oil and commodities prices would again surge as investors and hedge fund managers look for safer harbors.
As of 2010, 40% of US corn is used to fuel autos. Incidentally, ethanol only provides 4% of our fuels needs at best. Farmers last year began to switch from wheat, cotton, barley, and beans, and plant more and more corn (just as investors predicted they would. Record high prices, subsidies, and mandates tend to do that). This is occuring all over the world as farmers take advantage of anticipated $10/bushel corn. There’s a large industrial farm here where I live that has 3 million bushels of corn sitting in silos waiting for the right time to sell. As a consequence, wheat prices have gone through the roof, as have soy bean and cotton prices. Rice isn’t far behind.
The price signal is totally skewed. Supply and demand have nothing to do with today’s prices. Heck, globally demand for commodities today is less than the record consumption of 2006-07.
So please, don’t use this episode of monetary and financial mismanagment as a reason to indugle in yuppie self loathing, or Malthusian doom and gloom. Either Bernecke will raise interest rates to pop this asset bubble, or prices will do it for him. What goes up must come down.
March 10th, 2011 | 7:19 am | #4
I think JP is spot on except that i don’t see anything related to ‘self loathing’ in Colson’s piece or here.
“What goes up must come down” also applies to the gross amount of our tax dollars being squandered on ethanol subsidies. We need to wake up to this moral issue.
March 11th, 2011 | 1:55 pm | #5
A colleague returned last week from Uganda. Below is a message he received from a friend back in Uganda [the friend's name is removed but apart from that his post is unchanged, and yes, I have permission to pass this on]
“By the way there is some thing i have not told you yet,in Uganda every body is getting SMS from the prime minister’s office that,A long dry season has been predicted so we Expect shortages of food, water and pasture that people should store food and water to avoid hunger, please i know it very well that you love Uganda pray for us, because same people were sleeping empty tummys before so where do you expect them to get food for storing?and if they get it where are they going to keep it?Now people in the villages are drinking water from the same well with there animals can you imargin?now a jerrycan of water is 1500 shillings in some parts of Uganda,people are dieing of malaria now hunger!!what did we people of Uganda do to God so that every thing comes to us??!!Now when you go to the market every thing is very expensive,a banch of matoke which was on 8000 shillings is now at 20,000 shillings.Anyway my friend we need prayers but we are forgotten indeed.
yours in love of Christ”
Matoke is “banana”. 20,000 shillings is two weeks wages. That’s right. A bunch of bananas now costs two weeks wages in Uganda.
The price of oil, at least in part, appears to be driven by politics (where political concerns steer the supply and demand wagon). While it might be problematic, I think the analysis in James Norman’s “The Oil Card” needs to be at least considered (and David, your comment about the West being able to afford higher fuel prices while those higher prices create havoc for the rest of the world is something that Norman discusses a lot). The situation with corn highlights the relationship between international agribusiness and international oil interests–and geopolitical concerns. It looks like they are all part of a puzzle that maybe a FT reader knows something about. And it’s got to be a really, really, REALLY big puzzle.
While we work on the puzzle, we need to pray for Uganda. And all sales generated from the refinersfire web site will to go Uganda relief (Okay, so much for doing your good works in the closet but you get the point).
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