Here in the U.S., it’s the driest year in the last half-century and the hottest year ever recorded, a double whammy that’s leading to widespread crop failure and raising the specter, when combined with crops shortages in other countries, of massive unrest in the world’s poorer lands.
Dry weather is also cutting down on harvests in Africa, as the U.N. International Strategy for Disaster Reduction reports:
More than two-thirds of Africa’s population lives in rural areas and depend on rain-fed agriculture and pasture, making them highly vulnerable to bouts of extreme dry weather, says ARC, noting that there have been 132 recorded droughts in sub-Saharan Africa since 1990.
This year, drought is causing a crisis in the Sahel, affecting an estimated 18 million people in Burkina Faso, Chad, Mali, Mauritania, Niger, Senegal and Sudan. The UN Food and Agriculture Organization says overall Sahelian cereal production is 26 per cent lower than last year, with countries like Chad losing as much as half its cereal crops.
Only a year ago, drought in the Horn of Africa led to a severe food crisis for 10 million people in Djibouti, Ethiopia, Kenya, Somalia and Uganda. Britain’s Department for International Development, a major aid provider, says one year after famine was declared 2.5 million people in Somalia — the hardest hit country in the region — are still at risk of chronic food shortages.
And then there’s the Indian subcontinent, where Agence France-Presse reports that the annual monsoon rains arrived late this summer, and they’ve been yielding much less moisture:
The much-romanticised annual downpour that normally sweeps in at the start of June in the far south of the country is a lifeline for. . .about two thirds of the 1.2-billion population who depend on agriculture for their incomes.
But the rains have been so poor that some farmers have decided not to sow crops, spelling more bad news for a slowing economy buffeted by its worst power crisis this week following massive blackouts.
Haryana, along with neighbouring Punjab state, is known as the “bread basket” of India, the source of over 60 per cent of food grains such as wheat, maize, rice and pulses that are grown annually.
It has been one of the worst affected this year with 65 per cent less rain than the long-term average, according to the Indian Meteorological Department (IMD) in New Delhi.
Nation-wide, the monsoon has been more than 20 per cent below its average, sparking fears of drought among farmers who remember vividly the failure of 2009, when India suffered its worst drought in nearly four decades.
The grim news from close to home
The situation has reached extreme levels here in the U.S., breadbasket to the world. Hardest hit has been corn, where demand is driven not only by livestock and human consumption but by the federal ethanol mandate.
Here’s a status report on the drought from Bloomberg’s Brian K. Sullivan:
The two worst levels of drought now grip nearly one-fourth of the lower 48 states, the U.S. Drought Monitor reported.
About 24.1 percent of the region was suffering extreme or exceptional drought in the week ended Aug. 7, up from 22.3 percent in the previous period and 18.3 percent last year, according to the monitor, based in Lincoln, Nebraska.
While there has been some improvement in drought conditions in the Midwest, that wasn’t the case in the Great Plains, Mark Svoboda of the National Drought Mitigation Center in Lincoln said in an accompanying analysis.
The drought has helped push corn prices to a record. World food prices have surged 6.2 percent as dryness has also gripped Russia and below-average monsoon rains fell in India.
The primary corn and soybean agriculture areas in the U.S. had their sixth-driest April-July growing season in records dating back to 1895, the National Oceanic and Atmospheric Administration said yesterday.
For an idea of the extent of the crisis, here’s the latest edition of the U.S. Drought Monitor:
Heat wave breaks all previous records
By itself, drought would be bad enough, but then there’s record-breaking heat engulfing the American grain belt.
From Sam Nelson and Deborah Zabarenko of Reuters:
In the throes of a historic drought in the United States, a government agency said on Wednesday that it broke a heat record in July that had stood since the devastating Dust Bowl summer of 1936.
Reeling from widespread crop damage in July, Midwest farmers found some comfort on Wednesday in forecasts for rain over the next 10 days, a prospect that could take the edge off rising grain prices and concerns of food inflation worldwide.
The scorching month of July turned out to be the hottest month in the continental United States on record, beating the hottest month recorded in July 1936, the National Oceanic and Atmospheric Administration (NOAA) said.
The January-to-July period was also the warmest since modern record-keeping began in 1895, and the warmest 12-month period, eclipsing the last record set just a month ago. It was the fourth time in as many months that U.S. temperatures broke the hottest-12-months record, according to NOAA.
More from the New York Times’ Joanna M. Foster:
“July was a pretty interesting month because there were two different things at play,” Jake Crouch, a climatologist at the agency’s National Climatic Data Center in Asheville, N.C., said in an interview. “We saw very warm daytime temperatures over a large part of the country related to the ongoing drought, just as in 1936. When soils are dry, especially during the summer, it drives the daytime temperatures up. But this is a very local effect.”
“On the other side, at the national level, we have also seen very warm nighttime temperatures, and that is part of a long-term trend we’ve seen across the contiguous U.S. over the past several decades,” he said. “The hotter days increase the amount of moisture the lower atmosphere can hold, and this means it doesn’t cool off as much at night anymore.”
“This clearly shows a longer-term warming trend in the U.S., not just one really hot month,” Mr. Crouch said.
Global food prices edge upward, U.N. reports
UPDATE: First, a euronews video report on spiking food prices:
Next, the graphics, from the U.N. Food and Agriculture Organization [FAO]:
And the details:
The FAO Food Price Index (FFPI) averaged 213 points in July 2012, as much as 12 points (6 percent) up from June, but still well below the peak of 238 points reached in February 2011. The July surge of the Index followed three months of decline. The sharp rebound was mostly driven by a jump in grain and sugar prices, and more modest increases in oils/fats. International prices of meat and dairy products were little changed.
The FAO Cereal Price Index averaged 260 points in July, up 38 points (17 percent) from June and only 14 points below its all-time high (in nominal terms) of 274 points registered in April 2008. The severe deterioration of maize crop prospects in the United States, following drought conditions and excessive heat during critical stages of the crop development, pushed up maize prices by almost 23 percent in July. International wheat quotations also surged (by 19 percent), amid a worsening of production prospects in the Russian Federation and expectations of a firm demand for wheat from the livestock sector for the second consecutive season because of tight maize supplies. By contrast, international rice prices remained mostly unchanged in July, with the FAO overall Rice Price index stable at 238, barely one point more than in June.
Corn prices, already high, could soar
Back to the U.S. . . .
While direct corn consumption’s a relatively small part of the American diet, it’s also the main livestock feed and the source of all that high fructose corn syrup that’s replaced sugar as the main sweetener of American foods.
Then there’s that corn-produced ethanol,
From Jeff Cox of CNBC:
Corn prices – which have already surged about 50 percent in the past two months – could go significantly higher if current trends hold up, and the effects might be felt throughout the economy.
Price momentum indicates corn could rise at least 21 percent over the next six months, putting $9.50 a bushel or even higher into play, according to a model used by the American Restaurant Association.
“It’s not infallible but it suggests that there’s definitely upside risk here in this market,” said David Maloni, president and founder of the ARA Group. “It’s alarming, that’s why we look at it. We would not be surprised to some type of blow-off occur in corn and soybeans in the coming weeks.”
Corn prices hit their lowest point in nearly two years in mid-June but have spiked violently as drought conditions have worsened across the country.
With little relief in sight, there’s growing belief from agriculture experts that the price trajectory for grains is decidedly higher.
“It just depends on how bad these crops are, and I’m not sure anybody knows how bad they are,” Maloni said. “We’re rationing corn and soybean demand. The question is how much demand do we have to ration? We don’t know and probably won’t know for sure until later this fall.”
More troubling for corn’s future is that the danger of a price increase isn’t just indicated by technicals: there also are fundamental reasons. They include growing demand not just in the U.S. but also abroad in emerging markets, as well as the onerous ethanol mandates from the U.S. government.
The drought is already making itself felt at the grocery store, as Aaron Smith reports for CNNMoney:
Food prices have been creeping up throughout the United States, as hot temperatures across the Midwestern and Western parts of the nation have dried out crops and driven up the price of corn and grain.
The U.N. index of cereal prices soared 17% last month, creeping closer to its all-time high set in April 2008.
Paul McNamara, associate professor at the University of Illinois’ College of Agriculture, said grain prices could rise still further, as cattle ranchers look for a substitute to corn, the most expensive feed.
Meat prices actually declined modestly, according to the U.N. report, but that was partly due to ranchers culling their herds to curb prices they have to pay for corn-based feed,
McNamara said the increases in corn prices and the weak harvest will also put pressure on policymakers to change the current U.S. policy towards ethanol, which mandates that nearly 10% of the nation’s fuel supply comes from corn.
And then there’s the economic double whammy
From CNNMoney’s Steve Hargreaves:
The drought baking Midwest corn and soybean crops will likely cost the U.S. food export industry billions in lost revenue.
The United States accounts for over half the global export market for corn and nearly half of the soybean market. Some corn ends up in products like cereal and soda, but the biggest chunk is used as feedstock for pork, chicken and beef.
All told, U.S. agricultural products account for roughly 10% of the country’s $1.5 trillion export market, according to the Census Bureau.
Exports of corn, soybean and meat products — the items most at risk from the drought — totaled $53 billion in 2011.
The drought this year “will definitely hurt the quantity of exports,” said David Hightower, president of the agricultural futures newsletter The Hightower Report.
In other words, the drought adds a significant new threat to the already shaken American economy.
The threat of political upheaval
With the planet already in the grip of economic crisis, the prospects of food shortages and price spikes have politicians trembling.
After all, there’s a clear, documented relationship between food price increases and massive civil unrest, as charted here.
From Catherine Hornby of Reuters:
A mix of high oil prices, growing use of biofuels, bad weather, soaring grain futures markets and restrictive export policies pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti.
“There is potential for a situation to develop like we had back in 2007/08,” the FAO’s senior economist and grain analyst Abdolreza Abbassian told Reuters.
“There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn’t happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible.”
A number of major producers imposed various restrictions on exports in an attempt to control domestic prices in the 2007/08 crisis, including outright bans as well as quotas or higher tariffs on exports of foods including rice, corn and wheat.
The restrictions reduced supply on international markets, helping to drive prices even higher.
Charity Oxfam said that the surge in prices could drag millions of people around the world into conditions of hunger and malnourishment, in addition to nearly one billion who are already too poor to feed themselves.
“These price hikes are being driven by more than just a drought in the US corn-belt and problem harvests elsewhere. Our food system should be more resilient than this,” Oxfam spokesman Colin Roche said in a statement.
More from Michael Klare, a professor of peace and world security studies at Hampshire College, writing at TomDispatch:
Those price increases of 2007-2008 were largely attributed to the soaring cost of oil, which made food production more expensive. (Oil’s use is widespread in farming operations, irrigation, food delivery, and pesticide manufacture.) At the same time, increasing amounts of cropland worldwide were being diverted from food crops to the cultivation of plants used in making biofuels.
The next price spike in 2010-11 was, however, closely associated with climate change. An intense drought gripped much of eastern Russia during the summer of 2010, reducing the wheat harvest in that breadbasket region by one-fifth and prompting Moscow to ban all wheat exports. Drought also hurt China’s grain harvest, while intense flooding destroyed much of Australia’s wheat crop. Together with other extreme-weather-related effects, these disasters sent wheat prices soaring by more than 50% and the price of most food staples by 32%.
Once again, a surge in food prices resulted in widespread social unrest, this time concentrated in North Africa and the Middle East. The earliest protests arose over the cost of staples in Algeria and then Tunisia, where — no coincidence — the precipitating event was a young food vendor,Mohamed Bouazizi, setting himself on fire to protest government harassment. Anger over rising food and fuel prices combined with long-simmering resentments about government repression and corruption sparked what became known as the Arab Spring. The rising cost of basic staples, especially a loaf of bread, was also a cause of unrest in Egypt, Jordan, and Sudan. Other factors, notably anger at entrenched autocratic regimes, may have proved more powerful in those places, but as the author ofTropic of Chaos, Christian Parenti, wrote, “The initial trouble was traceable, at least in part, to the price of that loaf of bread.”
As for the current drought, analysts are already warning of instability in Africa, where corn is a major staple, and of increased popular unrest in China, where food prices are expected to rise at a time of growing hardship for that country’s vast pool of low-income, migratory workers and poor peasants. Higher food prices in the U.S. and China could also lead to reduced consumer spending on other goods, further contributing to the slowdown in the global economy and producing yet more worldwide misery, with unpredictable social consequences.
To close, one bit of good news
A leading German bank has announced that’s it opting out of the food speculation market — itself a major factor in food price increases as speculators play the market to drive costs even higher.
From Deutsche Welle:
Commerzbank of Germany confirmed on Thursday it had withdrawn from market speculation on prices for basic food items. The country’s second-largest lender said it had removed all agriculture products from its ComStage ETF CB Commodity fund.
Commerzbank stated that the move came in response to a series of international studies claiming that similar agricultural funds had played no small role in artificially pushing up food prices, contributing to widespread hunger in many parts of the world.
The lender’s decision was hailed by pressure groups in Germany.
“If a bank can’t be sure which damage such speculation may cause, it should not offer such funds to be on the safe side,” Foodwatch Germany Managing Director Thilo Bode said in a statement.
The decision by one bank to stop speculating means little in the end, given the massive dark pools of money and all those complex derivatives used to play the market these days.
So long as food isn’t considered a basic human right and the world’s supplies are left to the machinations of speculators, more violence isn’t just likely — it’s inevitable.
And doesn’t the idea of starting your own food garden suddenly sound a whole lot better?