POVERTY: Corn a big question mark in global food stock equation

JESSICA LEEDER — GLOBAL FOOD REPORTER  Jun. 07, 2011
36 comments Email Print/License Decrease text size Increase text size The latest culprit under surveillance for its role in driving up global grain prices is U.S.-grown corn.



Wheat was the star of last year’s global food price run, set off by a drought in Russia that decimated a chunk of the country’s crop and prompted officials to slam the borders shut to exports; prices shot up by 50 per cent; food riots broke out in Africa and the Middle East; and France, as leader of this year’s G20 meetings, vowed to assemble agriculture ministers to tackle market volatility.

 The latest culprit under surveillance for its role in driving up global grain prices is U.S.-grown corn.
Wheat was the star of last year’s global food price run, set off by a drought in Russia that decimated a chunk of the country’s crop and prompted officials to slam the borders shut to exports; prices shot up by 50 per cent; food riots broke out in Africa and the Middle East; and France, as leader of this year’s G20 meetings, vowed to assemble agriculture ministers to tackle market volatility.
With two weeks to go before the ministers convene, markets are bracing for the release of an influential U.S. agriculture report on Thursday that is expected to shed light on the status of global food stocks and forecast supply and demand for the crucial growing months.
Analysts warn that if the outlook for U.S. corn, which feeds two-thirds of the global market, is anything less than glowing, traders’ reaction to the report could tip off a new period of market volatility.
The explanation for this starts with unusually wet weather in the U.S. corn belt that forced long delays in planting this spring. Although prices dropped this week after a U.S. Department of Agriculture report outlined progress in the field – at least 94 per cent of the world’s largest corn crop has been seeded –worries remain that the delays will translate into lower yields by the end of the season.
The timing is bad: Corn stocks this year have hovered around record lows, and demand for corn to make biofuels is keeping prices high. In April, the USDA said it expected corn stocks to shrink to 18 days’ worth of supply, the tightest spot in more than a decade. The announcement came at a time of a global hunger for more market certainty after last year’s frenzy.
“If we have problems with the corn crop … prices will go up. And that will spill over into wheat,” said Philip Abbott, an agricultural economist at Indiana’s Purdue University. “Wheat would not be as high as it is now were it not for the fact that corn is so high.”
Making matters worse is a drought in Britain, Germany and France – Europe’s largest wheat producers – that is threatening this year’s crop. Although world wheat stocks are in good shape and global production is on pace for a slight increase, “another year of poor production in wheat would certainly be problematic,” Mr. Abbott said.
Not everyone is convinced of the grim outlook. Errol Anderson, a grain and livestock analyst with ProMarket Wire in Calgary, believes corn and wheat are both hovering on the top end of their trading range now. Strong production forecasts for the year and predictions that crude oil prices will sink are bolstering his certainty.
“The world as we see it, because of the slowing economies, runs a risk of deflation by the end of the year,” he said.
However, Mr. Anderson represents a minority. The United Nations’ Food and Agriculture Organization said on Tuesday that high and volatile prices are likely to prevail for the rest of the year and into 2012 despite a modest price drop in May.
While high prices are tough to stomach, particularly among the least developed countries, increasing volatility in food commodities has proven tougher for them to withstand over the past year as global food prices reached highs not seen since the infamous shocks of 2008.
The prospect of dampening that volatility set off a world-wide discussion on what, if any, measures should be implemented. G20 agriculture ministers are expected to tackle the subject later this month. The most controversial possibilities include actions to rein in speculative trading in commodity markets and the possible creation of an international agricultural information system to increase transparency around global production, supply and demand.
“Countries have to go through that market and, on a given day, buy their grain,” said Sophia Murphy, a B.C.-based senior adviser for the Institute for Agricultural Trade Policy. “There’s a lot of things affecting the prices they have to pay ... and many of them have little to do with whether there’s a real supply and demand issue,” she said.
Ms. Murphy said she’s encouraged by the prospect of the G20 discussions, but concerned that politics will get in the way of making a real dent in market volatility.
“If countries are being asked to rely on international markets for food security, they need to have some security that food is available,” she said. “All the mechanisms coming out of the G20 are about money. That’s all very well if there’s something to buy. But you can’t use money when the shelves are empty.”

U.S. corn crop
81 million : Approximate acres worth of corn harvested in the United States last year, the largest portion of which was used in livestock feed.
$66.7-billion  : Total value of the U.S. crop in 2010.
20 : Percentage of the crop that is exported.
50 million : Tonnes of corn the United States placed on the export market in the 2009-2010 fiscal year.
16 million : Tonnes of corn produced for the foreign market by Argentina, the next-largest exporter, in the same year.
15.9 million : Tonnes of the grain bought by Japan, the world’s largest importer.
40% of total corn grown in the world that U.S. production represents.

China, Brazil, Mexico : Other top producers.
More than 30% of the U.S. corn crop that is used for making ethanol.
Other products made with the grain : starch, cooking oil, flour, Bourbon whisky

http://www.theglobeandmail.com/news/world/americas/corn-a-big-question-mark-in-global-food-stock-equation/article2051121/

POVERTY: Five Causes of Rising Food Prices

February 16, 2011: Jacob Goldstein

  trimmer741/Flickr

Global wheat prices more than doubled in the second half of last year, according to a new report from the World Bank. The price of corn, sugar and cooking oil also soared.
Why are global food prices skyrocketing? Who is going to go hungry as a result? And what does it mean for the U.S.?
I recently put these questions to Abdolreza Abbassian, a food economist at the UN's Food and Agriculture Organization. Here's what he told me.



 FAO

Skyrocketing Prices
Abbassian attributed the price rise to several factors — some familiar to me (and probably to you), some less familiar.
1. The rise of biofuels, like ethanol made from corn. This market, driven largely by government subsidies, has created demand that is what economists call "price inelastic" — demand stays strong even as prices rise.
2. More demand from the developing world, particularly for meat. Livestock eat grain, so increasing demand for meat means increasing demand for grain. This source of demand has also been price inelastic, Abbassian said.
3. Disappearing stockpiles.
Because of WTO rules, the U.S. and Europe have been moving away from subsidies that led to vast reserves of wheat and corn.
Subsidies still exist in the U.S. and Europe, but they've taken a different form. Governments used to buy and stockpile surplus food from farmers. Now it's more common for governments to give farmers subsidy payments without actually buying any of the food they produce, Abbassian told me.
This sounds super wonky, but it has a huge impact on the price of food.
Big stockpiles mean that the supply of food remains relatively constant, even when there are disasters like the vast fires that destroyed last summer's Russian wheat crop.
But in the absence of stockpiles, unexpected shocks like those fires in Russia last summer have a huge impact on supply. That, in turn, contributes to huge price spikes.
"What you get is a world market that is increasingly tight, without much of a buffer," Abbassian told me. "Without a buffer, you have volatility. It's as simple as that."
4. Speculation
The volatility created by declining stocks is in turn compounded by speculation — traders betting on the rise or fall of prices.
Abbassian argued that bringing more transparency to commodities futures markets might mitigate this issue.
"If we know who is buying it and what are they buying it for, that may get those who are just there to gamble to be more cautious about their positions," he said.
Who is going to go hungry?
At any given moment, there are about a billion people in the world who don't have enough food to eat. When food prices go up, more people do go hungry — but the increase isn't as dramatic as you might think.
That's partly because many of the world's poorest people simply have no money and no access to food. Many live in countries where wars and other crises make it hard to get food to people. They would be hungry even if the price of food had not spiked.
What's more, in many poor countries, the local harvest is a more important factor than the price of global commodities. And many countries in Africa have had strong harvests of staples such as white corn and cassava.
One often overlooked region likely to be hit hard by the price increases is Central Asia, Abbassian said. This recent FAO report has lots of region-by-region detail.
What does all this mean for the U.S.?
Despite the fact that the price of staples like wheat, corn and sugar have risen by more than 50 percent in recent months, the price of food in the U.S. has barely budged — food prices here rose only 1.5 percent over the past year.
That's because the price of food in the U.S. is driven largely by labor costs and other factors, rather than by the price of the ingredients.
"If you eat a loaf of bread in the West, 2 percent of the price may be the wheat-flour price," Abbassian said. "In the developing world, it's 70 percent."
What's more, Americans only spend about 10 percent of their income on food — a far lower percentage than what people in the developing world typically spend. So even when food prices do rise in the U.S., it takes a smaller bite out of the average household's budget.
http://www.npr.org/blogs/money/2011/02/16/133744524/why-are-food-prices-going-crazy

POVERTY: Egypt and Tunisia usher in the new era of global food revolutions

Ambrose Evans-Pritchard: 31 January 2011

Political risk has returned with a vengeance. The first food revolutions of our Malthusian era have exposed the weak grip of authoritarian regimes in poor countries that import grain, whether in North Africa today or parts of Asia tomorrow.


As we sit glued to Al-Jazeera watching authority crumble in the cultural and political capital of the Arab world, exhilaration can turn quickly to foreboding. Photo: REUTERS


If you insist on joining the emerging market party at this stage of the agflation blow-off, avoid countries with an accelerating gap between rich and poor. Cairo’s EGX stock index has dropped 20pc in nine trading sessions.
Events have moved briskly since a Tunisian fruit vendor with a handcart set fire to himself six weeks ago, and in doing so lit the fuse that has detonated Egypt and threatens to topple the political order of the Maghreb, Yemen, and beyond.
As we sit glued to Al-Jazeera watching authority crumble in the cultural and political capital of the Arab world, exhilaration can turn quickly to foreboding.
This is nothing like the fall of the Berlin Wall. The triumph of secular democracy was hardly in doubt in central Europe. Whatever the mix of aspirations of those on the streets of Cairo, such uprisings are easy prey for tight-knit organizations – known in the revolutionary lexicon as Leninist vanguard parties.
In Egypt this means the Muslim Brotherhood, whether or not Nobel laureate Mohammed El Baradei ever served as figleaf. The Brotherhood is of course a different kettle of fish from Iran’s Ayatollahs; and Turkey shows that an ‘Islamic leaning’ government can be part of the liberal world – though Turkish premier Recep Tayyip Erdogan once let slip that democracy was a tram “you ride until you arrive at your destination, then you step off."
It does not take a febrile imagination to guess what the Brotherhood’s ascendancy might mean for Israel, and for strategic stability in the Mid-East. Asia has as much to lose if this goes wrong as the West. China’s energy intensity per unit of GDP is double US levels, and triple the UK.
The surge in global food prices since the summer – since Ben Bernanke signalled a fresh dollar blitz, as it happens – is not the underlying cause of Arab revolt, any more than bad harvests in 1788 were the cause of the French Revolution.
Yet they are the trigger, and have set off a vicious circle. Vulnerable governments are scrambling to lock up world supplies of grain while they can. Algeria bought 800,000 tonnes of wheat last week, and Indonesia has ordered 800,000 tonnes of rice, both greatly exceeding their normal pace of purchases. Saudi Arabia, Libya, and Bangladesh, are trying to secure extra grain supplies.
The UN’s Food and Agriculture Organization (FAO) said its global food index has surpassed the all-time high of 2008, both in nominal and real terms. The cereals index has risen 39pc in the last year, the oil and fats index 55pc.
The FAO implored goverments to avoid panic responses that “aggravate the situation”. If you are Hosni Mubarak hanging on in Cairo’s presidential palace, do care about such niceties?
France’s Nicolas Sarkozy blames the commodity spike on hedge funds, speculators, and the derivatives market (largely in London). He vowed to use his G20 presidency to smash the racket, but then Mr Sarkozy has a penchant for witchhunts against easy targets.
The European Commission has been hunting for proof to support his claims, without success. Its draft report – to be released last Wednesday, but withdrawn under pressure from Paris – reached exactly the same conclusion as investigators from the IMF, and US and British regulators.
“There is little evidence that the price formation process on commodity markets has changed in recent years with the growing importance of derivatives markets”, it said.
As Jeff Currie from Goldman Sachs tirelessly points out, future contracts are neutral. For every trader making money by going long on wheat, sugar, pork bellies, zinc, or crude oil, there is a trader losing money on the other side. It is a paper transfer between financial players.
You have to buy and hoard the vast amounts of these bulk commodities to have much impact on the price, which is costly and difficult to do, though people do park crude on floating tankers sometimes, and Chinese firms allegedly stashed copper in warehouses last year.
But that is not what commodity index funds with $150bn are actually doing with food, base metals, and energy. Only governments have strategic petroleum and grain reserves big enough to make a difference.
The immediate cause of this food spike was the worst drought in Russia and the Black Sea region for 130 years, lasting long enough to damage winter planting as well as the summer harvest. Russia imposed an export ban on grains. This was compounded by late rains in Canada, Nina disruptions in Argentina, and a series of acreage downgrades in the US. The world’s stocks-to-use ratio for corn is nearing a 30-year low of 12.8pc, according to Rabobank.
The deeper causes are well-known: an annual rise in global population by 73m; the “exhaustion” of the Green Revolution as the gains in crop yields fade, to cite the World Bank; diet shifts in Asia as the rising middle class switch to animal-protein diets, requiring 3-5 kilos of grain feed for every kilo of meat produced; the biofuel mandates that have diverted a third of the US corn crop into ethanol for cars.
Add the loss of farmland to Asia’s urban sprawl, and the depletion of the non-renewable acquivers for irrigation of North China’s plains, and the geopolitics of global food supply starts to look neuralgic.
Can the world head off mass famine? Yes, with leadership. The regions of the ex-Soviet Union farm 30m hectares less today than in the Khrushchev era, and yields are half western levels.
There are tapped hinterlands in Brazil, and in Africa where land titles and access to credit could unleash a great leap forward. The global reservoir of unforested cropland is 445m hectares, compared to 1.5 billion in production. But the low-lying fruit has already gone, and the vast investment needed will not come soon enough to avoid a menacing shift in the terms of trade between the land and the urban poor.
We are on a thinner margin of food security, as North Africa is discovering painfully, and China understands all too well. Perhaps it is a little too early to write off farm-rich Europe and America.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8291470/Egypt-and-Tunisia-usher-in-the-new-era-of-global-food-revolutions.html

MALNUTRITION: WikiLeaks: US targets EU over GM cropsUS embassy cable recommends drawing up list of countries for 'retaliation' over opposition to genetic modification

 John Vidal, environment editor guardian.co.uk,  3 January 2011

 Photograph: Sipa Press/Rex Features

The US embassy in Paris wanted to penalise the EU after France moved to ban a Monsanto GM corn variety.
The US embassy in Paris advised Washington to start a military-style trade war against any European Union country which opposed genetically modified (GM) crops, newly released WikiLeaks cables show.
In response to moves by France to ban a Monsanto GM corn variety in late 2007, the ambassador, Craig Stapleton, a friend and business partner of former US president George Bush, asked Washington to penalise the EU and particularly countries which did not support the use of GM crops.
"Country team Paris recommends that we calibrate a target retaliation list that causes some pain across the EU since this is a collective responsibility, but that also focuses in part on the worst culprits.
"The list should be measured rather than vicious and must be sustainable over the long term, since we should not expect an early victory. Moving to retaliation will make clear that the current path has real costs to EU interests and could help strengthen European pro-biotech voices," said Stapleton, who with Bush co-owned the St Louis-based Texas Rangers baseball team in the 1990s.
In other newly released cables, US diplomats around the world are found to have pushed GM crops as a strategic government and commercial imperative.
Because many Catholic bishops in developing countries have been vehemently opposed to the controversial crops, the US applied particular pressure to the pope's advisers.
Cables from the US embassy in the Vatican show that the US believes the pope is broadly supportive of the crops after sustained lobbying of senior Holy See advisers, but regrets that he has not yet stated his support. The US state department special adviser on biotechnology as well as government biotech advisers based in Kenya lobbied Vatican insiders to persuade the pope to declare his backing. "… met with [US monsignor] Fr Michael Osborn of the Pontifical Council Cor Unum, offering a chance to push the Vatican on biotech issues, and an opportunity for post to analyse the current state of play on biotech in the Vatican generally," says one cable in 2008.
"Opportunities exist to press the issue with the Vatican, and in turn to influence a wide segment of the population in Europe and the developing world," says another.
But in a setback, the US embassy found that its closest ally on GM, Cardinal Renato Martino, head of the powerful Pontifical Council for Justice and Peace and the man who mostly represents the pope at the United Nations, had withdrawn his support for the US.
"A Martino deputy told us recently that the cardinal had co-operated with embassy Vatican on biotech over the past two years in part to compensate for his vocal disapproval of the Iraq war and its aftermath – to keep relations with the USG [US government] smooth. According to our source, Martino no longer feels the need to take this approach," says the cable.
In addition, the cables show US diplomats working directly for GM companies such as Monsanto. "In response to recent urgent requests by [Spanish rural affairs ministry] state secretary Josep Puxeu and Monsanto, post requests renewed US government support of Spain's science-based agricultural biotechnology position through high-level US government intervention."
It also emerges that Spain and the US have worked closely together to persuade the EU not to strengthen biotechnology laws. In one cable, the embassy in Madrid writes: "If Spain falls, the rest of Europe will follow."
The cables show that not only did the Spanish government ask the US to keep pressure on Brussels but that the US knew in advance how Spain would vote, even before the Spanish biotech commission had reported.
http://www.guardian.co.uk/world/2011/jan/03/wikileaks-us-eu-gm-crops

MALNUTRITION: Biofuels in the United States military machine

THOMAS L. FRIEDMAN:  December 18, 2010
As I was saying, the thing I love most about America is that there’s always somebody here who doesn’t get the word — and they go out and do the right thing or invent the new thing, no matter what’s going on politically or economically. And what could save America’s energy future — at a time when a fraudulent, anti-science campaign funded largely by Big Oil and Big Coal has blocked Congress from passing any clean energy/climate bill — is the fact that the Navy and Marine Corps just didn’t get the word.
Spearheaded by Ray Mabus, President Obama’s secretary of the Navy and the former U.S. ambassador to Saudi Arabia, the Navy and Marines are building a strategy for “out-greening” Al Qaeda, “out-greening” the Taliban and “out-greening” the world’s petro-dictators. Their efforts are based in part on a recent study from 2007 data that found that the U.S. military loses one person, killed or wounded, for every 24 fuel convoys it runs in Afghanistan. Today, there are hundreds and hundreds of these convoys needed to truck fuel — to run air-conditioners and power diesel generators — to remote bases all over Afghanistan.
Mabus’s argument is that if the U.S. Navy and Marines could replace those generators with renewable power and more energy efficient buildings, and run its ships on nuclear energy, biofuels and hybrid engines, and fly its jets with bio-fuels, then it could out-green the Taliban — the best way to avoid a roadside bomb is to not have vehicles on the roads — and out-green all the petro-dictators now telling the world what to do.
Unlike the Congress, which can be bought off by Big Oil and Big Coal, it is not so easy to tell the Marines that they can’t buy the solar power that could save lives. I don’t know what the final outcome in Iraq or Afghanistan will be, but if we come out of these two wars with a Pentagon-led green revolution, I know they won’t be a total loss. Wars that were driven partly by our oil addiction end up forcing us to break our oil addiction? Wouldn’t that be interesting?
Jackalyne Pfannenstiel, the assistant secretary of the Navy for energy, installations and environment, used to lead the California Energy Commission. She listed for me what’s going on:
On April 22, Earth Day, the Navy flew a F/A-18 Super Hornet fighter jet powered by a 50-50 blend of conventional jet fuel and camelina aviation biofuel made from pressed mustard seeds. It flew at Mach 1.2 and has since been tested on biofuels at Mach 1.7 — without a hiccup. I loved the quote in Biofuels Digest from Scott Johnson, general manager of Sustainable Oils, which produced the camelina: “It was awesome to watch camelina biofuel break the sound barrier.”
The Navy will use only “third generation” biofuels. That means no ethanol made from corn because it doesn’t have enough energy density. The Navy is only testing fuels like camelina and algae that do not compete with food, that have a total end-to-end carbon footprint cleaner than fossil fuels and that can be grown in ways that will ultimately be cheaper than fossil fuels.
In October, the Navy launched the U.S.S. Makin Island amphibious assault ship, which is propelled by a hybrid gas turbine/electric motor. On its maiden voyage from Mississippi to San Diego, said Mabus, it saved $2 million in fuel.
In addition, the Navy has tested its RCB-X combat boat on a 50-50 blend of algae and diesel, and it has tested its SH-60 helicopter on a similar biofuel blend. Meanwhile, the Marines now have a “green” forward operating base set up in Helmand Province in Afghanistan that is testing in the field everything from LED lights in tents to solar canopies to power refrigerators and equipment — to see just how efficiently one remote base can get by without fossil fuel.
When you factor in all the costs of transporting fuel by truck or air to a forward base in Afghanistan — that is, guarding it and delivering it over mountains — a single gallon of gasoline “could cost up to $400” once it finally arrives, Mabus said.
The Navy plans in 2012 to put out to sea a “Great Green Fleet,” a 13-ship carrier battle group powered either by nuclear energy or 50-50 blends of biofuels and with aircraft flying on 50-50 blends of biofuels.
Mabus has also set a goal for the Navy to use alternative energy sources to provide 50 percent of the energy for all its war-fighting ships, planes, vehicles and shore installations by 2020. If the Navy really uses its buying power when buying power, and setting building efficiency standards, it alone could expand the green energy market in a decisive way.
And, if Congress will simply refrain from forcing the Navy to use corn ethanol or liquid coal — neither of which are clean or efficient, but are located in many Congressional districts — we might really get a green revolution in the military. That could save lives, money and the planet, and might even help us win — or avoid — the next war. Go Navy!
http://www.nytimes.com/2010/12/19/opinion/19friedman.html?ref=opinion