Food prices are spiking, people will be hungrey -- a warning!

Source: "The Age of Scarcity" by Charles Kenny, Bloomberg Businessweek,  July 26, 2012

The United States is undergoing a major drought this year, and crop yields will be way down. As a result, and as a result of the continuing domestic demand for agricultural products, U.S. food exports will be expected to decrease. There will of course be shortfalls from crops in other countries (water shortage in India due to a weak monsoon, flooding in parts of Japan, drought in parts of Africa, etc.) As a result, food prices are spiking.

The result will be hunger for the poor, I quote from Charles Kinny's article:

World Bank researchers estimate that food-price changes between June and December 2010—including a 73 percent rise in corn prices—pushed 44 million people back below the $1.25-per-day extreme poverty line.

Global climate change is going to be with us at least in coming decades, probably longer. The climate change is predicted to bring with it more extreme weather events. It will also change the areas best suited for different crops, perhaps resulting in crop losses as farmers are slow to make the adjustments.

Other factors also play a role in food-price spikes. For example:

In both 2008 and 2011, agricultural prices rose in tandem with energy prices, just as they did in the 1970s. That’s in part because it takes 160 liters of oil to produce a metric ton of corn in the U.S., and the cost of natural gas accounts for three-quarters of the cost of nitrogen fertilizer.

Price is determined by both demand and supply.

Between 1990 and 2010, total global per capita consumption of beef, pork, and poultry increased by 1.2 percent annually (and thus the demand for feed is also increasing). Over the next 50 years food output will have to rise 50 percent to cater to 2 billion extra people and their growing appetite for meat. Meanwhile, growth in global biofuel production rose 30 percent per year from 2006 to 2008.

Speculation in commodity markets can increase the cost of food to the consumer.

Finally, volatility itself makes gambling on commodity futures more attractive for speculators. Commodity futures funds in 2008 invested as much as $250 billion to $300 billion. During the 2008 crisis, fear of domestic food shortages led governments to aggressively purchase on international markets and to curb exports—Russia banned wheat sales, for example—raising global prices even more.

There are of course many policy instruments that could be used to ameliorate the growing problem of high food prices (and failures in distribution systems that leave those most at risk still hungrey. Charles says:

This year’s price spike probably won’t be a disaster of Biblical proportion. If global leaders don’t act, however, it’s likely to be a sign of things to come: permanent volatility in prices that are trending upward, putting at risk some of the world’s most vulnerable people.