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Next Up? A Food Price Crisis
Wheat prices have jumped by more than 50 percent since June and are likely to rise further due to expectations of tighter supplies, triggering concerns about a repeat of the food crisis in 2007/08 that forced interest rates higher in many economies and led to emergency controls in others.
NEXT UP? A FOOD PRICE CRISIS -- World wheat supplies may shrink next year if severe drought continues in Russia, Europe's leading wheat producer. Flood-affected people jostle for food relief in Nowshera in northwest Pakistan on Friday, Aug. 6, 2010.
(AP Photo/Mohammad Sajjad) The UN's Food and Agriculture Organisation (FAO) cut its 2010 global wheat forecast by about 4 percent this week and said world wheat supplies may shrink next year if severe drought continues in Russia, Europe's leading wheat producer.
Russia imposed a temporary export ban on Thursday in response to a record-breaking heatwave and the extent of the damage to crops and its economy is only beginning to become clear.
Spiralling wheat prices could translate into higher inflation and possibly higher interest rates in emerging market economies, which tend to hold a large proportion of their consumer price baskets in food.
The FAO said healthy world stock levels should prevent a repeat of the crisis of 2007/08 but past squeezes on food have led some central banks to hike aggressively in a bid to head off a second round of price rises in their economies.
Analysts and investors are already preparing for tighter monetary policy in emerging economies, even as they look to the possibility of further quantitative easing in the United States.
"It is a big deal for emerging markets, though maybe not as big a deal as it was in 2006/7/8, as food prices make up 20-50 percent of emerging CPI baskets," said Charles Robertson, EEMEA chief economist at ING.
"Food prices never move in the U.S. as a result of changes in global harvests, because so much of the price of food is taken up by packaging, suppliers. In the EU, food prices move a little bit but in emerging markets, food price rises can add a few percentage points to the inflation rate."
RUSSIAN RATES
Countries likely to be particularly at risk from high wheat prices include Nigeria, which has 25 percent of its CPI basket in bread and cereals, Robertson said.
Western economies typically have less than 20 percent of their CPI basket in food, compared with 30 percent on average in emerging markets, according to U.S. bank Morgan Stanley.
In Russia, higher wheat prices are contributing to speculation that the central bank will raise interest rates as early this year, after cutting 14 times since April 2009 to a record low refinancing rate of 7.75 percent.
Annual inflation in Russia is 5.5 percent.
"We see more upside risks...even a 15 percent inflation rate next summer does not seem unthinkable," said analysts at Danske in a client note.
Some central banks have already responded.
In India, a year-long spell of double-digit inflation, largely on rising food prices, sparked massive street protests.
One of a small but growing number of economies to have started raising interest rates, India has lifted its main lending rate four times by a total of 100 basis points since March, to 5.75 percent. Analysts say there is more to come.
However, an end to the El Nino weather pattern which led to the food price spike in India may actually reduce food price inflation in India, analysts say.
CURRENCY BOOST
Higher inflation and higher interest rates tend to depress bond prices and can also affect corporate lending, eroding stock market gains.
Investors have flocked into emerging market debt this year, keeping spreads below the key 300 basis point level over U.S. Treasuries, in their search for higher yield without exposure to even riskier emerging equities. Any whiff of inflation is likely to turn those debt investors more cautious.
But currencies find an upside in higher rates, due to the relative appeal of holding deposits in higher-yielding markets.
The Ukrainian hryvnia, which has already shown some appreciation in recent months due to an improving economy, is singled out by analysts as likely to rise further.
The rouble may also be allowed to rise if Russia has to import grain, although Russian prime minister Vladimir Putin on Thursday imposed a temporary grain export ban.
"Countries that import food could be more open to allowing their currencies to appreciate in order to cope with higher food prices," said Elisabeth Gruie, emerging market strategist at BNP Paribas. "Eastern European countries such as Poland will be sensitive to the impact on higher food prices on inflation and could react by adjusting monetary policy."
Fuel and food prices took inflation to multi-year highs in central Europe in 2008, prompting rate rises, and there were also protests against rising food prices in many emerging market countries.
To grapple spiking food price inflation, several emerging food exporters, including Russia, Ukraine and Kazakhstan, introduced export duties in early 2008. Russia had already imposed price controls on basic foodstuffs in Oct 2007.
Wheat prices can also lead to higher prices of other food, as consumers switch to buying more rice, for example, putting upward pressure on currencies in the Middle East and Asia.
"Places like Egypt, India, Indonesia and the Philippines are pretty big importers of food," said Philip Poole, head of macro and investment strategy at HSBC Global Asset Management.
"Consumers are moving up the food chain in emerging markets, literally, that's putting the pressure on."
Additional reporting by Sebastian Tong; editing by Patrick Graham
34 Comments so far
Show AllThis is an opportunity for farmers to make money and make the extra effort to grow more food. We are in a time of erratic price fluctuation. Today wheat was down the 60 cent daily limit on the CBOT.
>>"Places like Egypt, India, Indonesia and the Philippines are pretty big importers of food," said Philip Poole, head of macro and investment strategy at HSBC Global Asset Management. Consumers are moving up the food chain in emerging markets, literally, that's putting the pressure on."
So a British person eating up the food chain won't put the pressure on resources and prices? Can Britain produce all its meat **and** animal feed within its borders? I would like to challenge such arrogant, possibly racist, morons. The point should be about "eating higher up the food chain". Period! Not whine about brown people eating.
The same thinking at work that complains about Chinese and Indians driving cars. Get used to it. Westerners do not want to listen when people plead with them to cut down their consumption. The only way to put some sense into their heads is by showing what would happen if everybody starts doing what they have been doing. Of course there's added destruction. But what's the alternative to bring some sense?
The same thinking that points to countries trying to acquire nuclear weapons, when it's pretty clear that countries without adequate defense will either have to accept domination by nuclear powers or constantly face threat and bullying. The only way out is to go ahead and acquire nuclear weapons of their own.
C'mon for decades UNICEF and others have been trying to convince the devloping nations to grow and eat only crops that they can grow in their regions. but wheat is easier, and the soviet union used to dump it at almost $0 per ton to undercut the US during the cold war years. Now their addicted to a food they can't grow and must import, good for the master race, whoever they are.
Makes me look for my tin-foil hat, and inventory my years supply of MRE's
>^^<
Actually, RichardsCatz, it was not just the Soviet Union that was sending ("dumping" as you call it) wheat to other countries. The USA too. In fact, the crisis faced by India in the 1960's was that it was starting to depend on wheat imports from the USA, even though rice was much more of a staple food there. (If you want to know why India had to import food grains in the first place, you will have to look at the history - including before and soon after its independence from British rule in 1947.) Various factors (perhaps only of interest to some people) led to the so-called Green Revolution, which actually made India self-sufficient in just about a decade. And it was largely self-sufficient until the last 10-15 years when meat and dairy consumptions started increasing, governments (state and federal) started cutting down social programs, farmland started getting diverted to growing non-food crops and to industrial activities, etc. Add in the water shortage, India finds itself having to import food now. They can reverse the situation and go back to being self-sufficient by cutting down their dairy and meat consumption to pre-1990 levels and by addressing their income and wealth inequalities.
So why is that a story supposedly about "A Food Price **Crisis**" has quotes only from economists and bankers?
>>***Analysts and investors*** are already preparing for tighter monetary policy in emerging economies, even as they look to the possibility of further quantitative easing in the United States.
>>"It is a big deal for emerging markets, though maybe not as big a deal as it was in 2006/7/8, as food prices make up 20-50 percent of emerging CPI baskets," said Charles Robertson, EEMEA ***chief economist at ING***.
>>"Countries that import food could be more open to allowing their currencies to appreciate in order to cope with higher food prices," said Elisabeth Gruie, ***emerging market strategist at BNP Paribas***.
>>"Places like Egypt, India, Indonesia and the Philippines are pretty big importers of food," said Philip Poole, ***head of macro and investment strategy at HSBC Global Asset Management***.
Sounds like these characters are looking at an **opportunity** to profit. The only "crisis" they apparently fear is the inflation in these countries that may decrease the value of their investments (and bets) somewhat, and that the price spikes may not be as big as in 2006 when many of them made a killing.
I absolutely agree. Financial speculation on basic needs like food is immoral and should be banned worldwide.
You neglected to give an opinion on how to set prices for food commodities that allow farmers to sell their crops when they wish. In the old days farmers would plant and come harvest time, if the crop was good, the price would often fall to a losing situation. Now, the farmer can sell before he plants, if he so chooses. Worldwide, the farmer needs speculation on food to give him the knowledge and security to be successful. Farming is a lot more fun if you are confident that your hard work will lead to success as opposed to slowly losing the farm.
It's farmers who live in a predatory-capitalist society who lose their farms when prices are set by speculators (and lenders etc.) who have no connection to actual production and simply profit on increased need. You are an apologist for not only an immoral but a failed system. International regulations and price ceilings (both high and low) would go a long way to curtailing the sort of current no-holds-barred speculation that ruins the lives of literally billions for the benefit of a small handful of individuals.
You also say: "Farming is a lot more fun if you are confident that your hard work will lead to success."
The fact that you term term "success" what should be described simply as earning an honest living speaks volumes about where you're coming from.
Ok, first, good luck with your "international regulations and price ceilings (both high and low). You're so far out in left field that no one can even see you. Your idea is not going to happen and it's totally unworkable on every level imaginable.
Second, you sure read a lot into my use of the word success. I juxtaposed success with not losing the farm. How do you read something voluminous about that?
Western society, especially the US, is enslaved to the idea of "success." People kill over it, in fact. To associate any sort of honest living, such as farming, with this ideal is absurd. That you fail see any problem in this, and in your use of the term, shows how unsubtle your approach to language and society is.
Obviously you believe in the "magic of the marketplace," and in competition over cooperation. Your world is crumbling, pal. That you fail to see this probably means you'll go down with the ship. I hope you know how to swim, and over long distances.
You will find that most people are interested in "success", North, East, West or South.
See a lot of cooperation in the coming brave new world do you? I don't. I see if anything a reversion to Nationalism and a decrease in interest in "Global" anything.
Bullshit. "Success" is a modern concept, a modern chimera, and didn't even exist before our parasitic get-rich-quick culture spread it to the rest of the world like a disease. And it's still thrust daily on all the brain-dead masses by their TVs and press services and movies, so they can each think that maybe they too will be one of the "lucky ones" while in fact they are swirling round down the sewage drain.
Your vision of the future is simply an extension and worsening of the fascist present. I dare to think that another way is possible.
Now go back to your TV and dream of "success."
Your problem seems to be that you do not clearly swee thye past apparently, which of course perverts your vision of the future.
You will find Bull Shit in rachers fields, the environs of Washington, University lounges and ideologues. Seldom is it found among people that actually work or have experience in the real world.
The utopian dream of socialism, communism or whatever you see as "cooperation", usually its some form of equal sharing overseen by rthe "enlightened" Poof!
Whereas your vision is retrograde and dog-eat-dog. I guess you would call that "pragmatism" and "realism."
I think I see the past far better than you do.
Health Care Too!
Meanwhile rainforests are being bulldozed to grow crops to make biofuels...so we can still drive cars while others starve. Insane.
Capitilism!
as long as we can afford it. I boycott biofuel for just that reason.
>^^<
WE do not need biofuels. WE are not responsible for bulldozing rainforests to make biofuel. OUR cars are not running on it.
While I grant your point, please get your facts straight. The bio-fuel we are using is politically motivated and required and is stupidity squared. But the corn farmers are doing well, Agribusiness is making a ton from others stupidity.
Next? I thought were there already. Well, maybe not crisis but prices are going up. First, it was gas, up to almost $3/gallon again - while the MIC gets trillions for fighting wars for oil. Last week, I went to the supermarket and milk had gone up $0.10/gallon from the prior week. Seems like nothing but if you add a dime here and a nickle there and a quarter over there, before you know it, its whole dollars - and many of them. Of course, we're not even going to talk about the fact that during the price disaster under Wanker, when gas went up to almost $5/gallon, what the thieves did in order to fool the sheeple, was to reduce the amount of product in the packaging and leave the price the same. Now, the prices are going up but not so the amount of product.
Yep. Every which way you look, you can see the signs. If one thing doesn't take us out, there's always another one to do the trick. We're all going to hell in a hand-held basket.
Where are you? in CA were paying $3.25 and it's marching up every night, It'll be $4 by the end of the month.
With a 20% paycut on top of it. I guess the masters just won't let us work off our debt. We'll have to do it like countries, Run up the C/C and go bankrupt every 7yrs
sad
>^^<
When crude went up to almost $5, motor oil, and oil related products also shot up.
They only came down a smidgen, when the crude price fell again.
Rev's right on here, all prices on essential items rose; but personal income fell.
Predatory lenders went from predatory lending to predatory debt "relief"! Same Financial Institutions!
India, I've read, has a huge middle class now, all eating meat, all driving cars, all taking vacations as tourists on low cost airline carriers. China is the same. Both those expanding economies have their own local Robber Barons who frankly, just despise poor and working people.
Famine and War have always been with us. I don't realistically think they will ever go away. I used to live in a Rain Forest, and you wouldn't believe the war between monkey troops that went on in our back yard.
We are all just a bunch of naked apes siting around trying to steal bananas from each other. Charities are the worst imho. I see their wares for sale by middle men, still emblazoned with the words Unixxx NOT FOR SALE IN STORES on them.
Nature, in it's devices for Natural Selection is full of deceit. Homo sapien is no different.
beware the beast man....
TJ
I was troubled by your slap at "charities." Some are very good. Some are scams. I hope people do a bit of homework when giving.
India, I've read, has a huge middle class now, all eating meat, all driving cars, all taking vacations as tourists on low cost airline carriers. China is the same. Both those expanding economies have their own local Robber Barons who frankly, just despise poor and working people.
Famine and War have always been with us. I don't realistically think they will ever go away. I used to live in a Rain Forest, and you wouldn't believe the war between monkey troops that went on in our back yard.
We are all just a bunch of naked apes siting around trying to steal bananas from each other. Charities are the worst imho. I see their wares for sale by middle men, still emblazoned with the words Unixxx NOT FOR SALE IN STORES on them.
Nature, in it's devices for Natural Selection is full of deceit. Homo sapien is no different.
beware the beast man....
TJ
Don't forget the shopping. It was a mob in hell in India and the weather was hot but that was January. In China, the shopping mob was also there and boy were people just rude as could be. They normally wouldn't be but shopping anxieties can change people. The crowded mobs were dangerous as my wife and I almost lost each other several times. Usually, the middle out in the Far East would be careful before going on shopping sprees but the crowded shopping mobs would make even NYC shopping crowds dull in pale comparison.
There is a growing middle class that is indeed embracing "consumerism" with open arms.
And "Class" in India has always been very seperated. Second hand, a couple of Marines that served in our embassy there said there were people that were of a class that no one would even allow around them. India is a place I have not travled and don't know a lot about.
"It seems obvious that international speculation in food is a major problem not really addressed much by personal vegetable consumptionism alone."
There was an article on CD not long ago about not just Corporations but even very rich individuals buying up or leasing farmland and shipping the food out for sale leaving a shortage of food in the areas that are cproducing it. Gutting small farms pretty much like what happened to Mexican Corn Farmers with NAFTA, except their land was priced out of their reach.
Spot on, Alcyon.
ardent- the Philippines would starve if left to the devices of the government. remittances keep that filthy republic afloat. throw an american dollar on any old dusty road and you've just started a riot.
been there.
In all of the countries in Asia that I had a chance to visit earlier this year, the ones doing the most importing are the same ones setting up western restaurants and westernizing some of the otherwise local restaurants. In China and India, trying to keep local restaurants dedicated to their native homegrown food has been very difficult. Especially in India, the government will go after small restaurant owners far more than they do the big ones. It was very frustrating to my wife and I to have to stumble across more Saravana Bhavan restaurants if not the typical western restaurants when nothing else would be available at late lunch and dinner hours. Now what angered me the most was that even among the local restaurants available, sanitation had little to no priority. I had seen this throughout most of the Far Eastern nations I had visited but it was very obvious in India where the flies were endless and in China where the smell of sludge was more obvious. Even though my wife and I had each gotten sick on our tours with our sicknesses each tracing to one of the small restaurants we went to, we still have a lot of sympathy for those owners trying to make it through as their countries are at a battle with yuppie style capitalism. If the food prices go up high and GMO gets its way in India and possibly other surrounding nations, the wipeout of localized restaurants unique in culture will be much worse than a similar wipeout that happened in this country.
maxpayne, I want to point out a wrong assumption - a major one at that: that the Saravana Bhavan restaurant chain is a western-style restaurant. That is completely wrong, because having eaten at their restaurants and having been impressed by their quality and service, I had a chance to talk to some of their employees - at their restaurants as well as at a Food Expo in New Delhi (it was more for manufacturers of kitchen equipment, including commercial-size ones). It turns out Saravana Bhavan had a humble beginning, but grew simply out of a commitment to serving quality food. And only vegetarian, too - if you haven't noticed. There are a few such vegetarian restaurant chains, that serve good food and their kitchens are well-maintained as well. And judging by the people who frequent these, you can't even call them "elite" by any means.
What I do find alarming though, is the increased varieties of dairy-based dishes even in vegetarian restaurants. And you might have noticed that milk sweets (and those made with "ghee") are huge in India. While I do find them delicious, the proliferation of "sweet stalls" selling such milk and ghee sweets is putting enormous pressure on farmland and water use. Not to mention, making India the diabetes capital of the world.
I didn't assume that it was a Western style restaurant but their business of it being a restaurant chain similar to the ones in the US. The food wasn't too bad but the saltiness after 3 days made us somewhat less inclined to look up to that restaurant as a first resort. You are correct about the kitchens and in one of them, we could see how they did their cooking and cleaning. I hope they don't get into pre-packing. The fly catchers and the air-conditioning also made them hard to resist. I don't know of any other big Indian restaurant could compete with them. There are other good hotel restaurants as well. They were more expensive compared to SB but being from the US, we didn't have to worry as much. I do need to research them indeed.
PS: I wonder if they could lobby against that GMO free speech law or if it's too late.
Nothing this old Indian can say. If you born into the world of the Europeans with their cash register world you have to pay for it as they don't live like the Tribes used to live upon Creator's earth for free. Just hunt, fish, grow, and gather your food.
So the Europeans are now here with their buy it sell it world, and people of Native heritage have to pay for it, too, now.
So pay your bills and die.
Life is good. What an experience! It's always best to forgive.