Instability in the developing world is mounting as food shortage intensifies as a result of increase in basic commodity prices. After 20 years of relative stability in food prices, world is seeing substantial price increase. The global food prices gained 57% year over year, this is the highest gain in decades. Cost of staples like rice, wheat and corn has doubled in the last year. When everyone speaks of Oil spike hurting global growth, etc it pales in comparison to the risk of food inflation which would by far guarantee a global slowdown.

As per capita’s have risen household in most countries have relatively reduced spending on food over the last century. An average family household in United States spent 11.7% (http://www.ers.usda.gov/briefing/CPIFoodAndExpenditures/Data/table8.htm) of income on food in 2006, recent price rise has today increased this modestly to 13%. Similarly developed countries have come a long way, though they still average close to 50% of expenditure on food and it varies significantly from region to region also within a nation too. India for example spends less than 40% on food compared to 75% in the 1970’s. However still close to third (2+ billion) of the world population lives on less than $2 a day, this segment of population spend 80-90% of their income entirely on food, imagine the effects on this large portion of mankind.

As the rich – poor divide widens in the world, there remains a significant poor population in every country which is being priced out. Even in countries like United States, folks receiving food stamps will hit all time high of 28 million this year, 2008. So far 40 states in USA have reported increase in recipients, economically depressed states like Michigan have one in eight receiving food stamps, highest in decades. Based on percentage of population in USA, it is still low compared to the 90’s recession wherein close to 10.3% (1993) received food stamps compared to 9.2% today. The worrying part is that the increase has happened much before US has officially hit a recession. Normally the worst years are 1-2 years post official recession as that is when companies increase layoff’s resulting in greater unemployment which is still holding currently at 5.1% compared to 7.3 in 1993 (http://www.data360.org/dsg.aspx?Data_Set_Group_Id=44).

In developing world the impact is graver as there are no structures like food stamps to cushion the effects, social unrest and political instability is unavoidable. Haiti recently has seen large scale rioting and deaths over food and also has resulted in ouster of the government, riots have also hit Egypt, Yemen, Burkina Faso, Indonesia, Mexico, Bangladesh, Senegal and many more countries. African and Asian countries are the hardest hit as most of the subsistence living population lie in this region. United Nations projects all regions which spend 50-60 percent of wages on food will be hit by unrest. In the short term hardest hit regions have to be cushioned by aid programs, else unrest will escalate resulting in anarchy and unnecessary deaths. Many countries like Philippines, Pakistan have sent in the army to guard government food stock from banditry and rioters. Countries like Thailand, India have curbed exports of staples like rice to stabilize the prices.

The causes of food price increase are attributed to many factors, from rising food consumption to biofuels, etc. As countries like India, Vietnam, China are seeing their high growth economies create larger middle class societies, they are naturally moving to much better and higher nutrient diet. For example China alone consumes three times more food today than in 1995, similarly all fast growing economies are seeing a significant jump in consumption. Biofuels boom is making countries like USA put 20% of their harvest to energy use today which is further fueling the price rise. Prolonged droughts for last 6 years in Australia have decimated its rice production by 98% which has also contributed to the rise in prices. Factors like global warming, water resources shortage, etc all are valid arguments hurting food production too.

Overall many of the factors for higher consumption of food for eating or energy is hear to stay, the last time world faced such a situation in the years 1955-75, the world economies reacted by increasing yield. Example, when India was facing another famine in early 1960’s, Norman Borlaug (father of Green Revolution) was invited as an adviser to increase food production. Soon India adapted to new seed varieties, resulting in increased per hectare yield to 6 hectare from 2 hectares earlier. The rise in production resulted in rice costs dropping from $550 in 1970 to $200 per ton in 2001. Similarly most countries (exception was few African countries) in the world adapted to the green revolution thus increasing yields radically, thereby driving the prices of food down significantly.

The current challenge to increase food production is definitely more formidable. However solutions are there, from increasing yield using GM foods to curbing biofuels in exchange to natural energy sources like solar, wind to conservation to more efficient use of energy like hybrid automobiles, etc. Based on technological advances, today the world can exchange information and share innovations at a global level easily. What it lacks is a global coordination of efforts to reduce pressure on food prices. Currently there exists no worldwide framework to combat price rise, different regions need unique tactics and strategies as problems range from consumption to hoarding to speculative pricing to shifting priority in food use. Currently each country is taking local short term actions which are further causing unnecessary shortages and worsening situations in other geographical regions. It is time for UN or a major country or G-7 or a foundation similar to the size of Gates foundation to coordinate a global effort to fight price rise on a big picture basis? Time is of the essence as more countries take inefficient steps it will only result in a painful correction and will hurt both local and world economies for a longer period. Else famines are a real consequence of inaction, which will be dreadful and will result in millions of death and worldwide depression; it can and should be avoided at any cost.

Labels: biofuels, commodity, food, instability, poverty, price rise, shortage

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