Thursday, March 13, 2008

Hunger is set to grow as global food stocks fall

The Great Wheat Panic of 2007 saw global prices shoot up by over 92 per cent during the year. Rice and corn prices also rose as sharply. Food riots have been reported from Kolkata to Namibia, Zimbabwe, Morocco, Uzbekistan, Austria, Hungary and Mexico.

And the Food and Agricultural Organization declared that 854 million people go hungry around the world. Things are expected to get worse in 2008.

Is mankind peering down an abyss of hunger?

Global consumption of wheat and rice has outstripped production for the past seven years running, except in 2004-05. Production is growing, but population is growing faster.

If production is less than demand, then how do people get enough food? Each year, a certain portion of foodgrains is kept in stock, to be used next year. This is now getting used up for meeting excess demand.

Global wheat stocks were down to 107 million MT (metric tonnes) in 2007, compared with over 197 million MT in 2001; rice stocks were just 71 million MT compared with 136 million MT.

All this means that the future supply of both wheat and rice is becoming more uncertain. That means prices are likely to keep going up.
India stands at a tipping point, especially as foodgrain production is stagnating. Wheat output was 72.8 million MT in 2002.

This year it is estimated at about 74 million MT. Rice output was 93.3 million MT in 2002 and this year it is estimated at about 90 million MT. Meanwhile, population has increased by about 88 million. So, there will be need for imports.

This, in turn, will fuel global prices. Grain economist Mike Woolverton of Kansas State University says that as soon as India bought 795,000 MT of wheat at a record price of $389.45 in August 2007, wheat futures in Europe rose by 70 per cent on expectations of more orders.

Greg Wagner, director of a grain trade consultancy in Chicago says , "With global economies continuing to expand, the demand base has been increasing while the supply has been decreasing. As a consequence, prices must go high enough to cut back on demand otherwise there will not be any wheat left."

In 2007, the world supply of wheat was affected due to drought in Australia, a freeze in US and lower production in Ukraine. The price surge was also fuelled by the new US law saying the use of ethanol for automobiles should be doubled to 15 billion gallons by 2015. Ethanol is made from corn. So, corn prices surged.

According to David Victor, an agricultural economist at Stanford University, "Corn prices are rising, in large part because a growing fraction of US corn production is going into ethanol biofuels, mainly because of ill-conceived energy policies. Since the US is the largest corn exporter, this affects the world market. In turn, this has some effect on wheat because, for example, wheat can be used in feed grain instead of corn."

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