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Earth Policy News - World Food Prices Rising

Eco-Economy Update 2004-8
For Immediate Release
Copyright Earth Policy Institute 2004
April 28, 2004


WORLD FOOD PRICES RISING
Decades of Environmental Neglect Shrinking Harvests in Key Countries
http://www.earth-policy.org/Updates/Update39.htm

Lester R. Brown

When this year's grain harvest begins in May, world grain stocks will be
down to 59 days of consumption--the lowest level in 30 years. The last
time stocks were this low, in 1972-74, wheat and rice prices doubled. A
politics of scarcity emerged with exporting countries, such as the United
States, restricting exports and using food for political leverage.
Hundreds of thousands of people in food-short countries, including
Ethiopia and Bangladesh, died of hunger.

Now, a generation later, a similar scenario is unfolding, but for
different reasons. After nearly tripling from 1950 to 1996, growth in the
world grain harvest came to a halt. In each of the last four years world
grain production has fallen short of consumption, forcing a drawdown of
stocks. During this period, expanding deserts, falling water tables,
crop-withering temperatures, and other environmental trends have largely
offset the positive contributions of advancing technology and additional
investment in agriculture.

Prices of basic food and feed commodities are climbing. Wheat futures for
May 2004 that traded as low as $2.90 a bushel within the last year on the
Chicago Board of Trade have recently topped $4 a bushel, a climb of 38
percent. A similar calculation shows the price of corn up by 36 percent,
rice up 39 percent, and soybeans doubling from just over $5 per bushel to
over $10 a bushel. Rises in the price of wheat and rice (the world's two
basic food staples) and corn and soybeans (the principal feedstuffs) are
contributing to higher food prices worldwide, including in China and the
United States, the largest food producers.

In China, where grain prices are 30 percent above those of a year ago, the
National Bureau of Statistics reports that retail food prices in March
were 7.9 percent higher than in March 2003. The price of vegetable oil is
up by 26 percent, meat by 15 percent, and eggs by 19 percent.

All countries are affected by the rising world price of basic food
commodities. The American Farm Bureau marketbasket survey, which monitors
U.S. retail prices of 16 basic food products in 32 states, shows a 10.5
percent rise in food prices during the first quarter of 2004 over the like
period in 2003.

Price rises range from a 2 percent rise in the price of milk to a
29-percent rise for eggs. The price of vegetable oil, up 23 percent, is
beginning to reflect the doubling of soybean prices. Meat prices are up
across the board. A pound of ground chuck climbed from $2.10 a year ago to
$2.48, up 18 percent. Whole fryers were also up 18 percent. Pork chops
were up 10 percent. Bread and potatoes were up 4 and 3 percent,
respectively. (See data www.earth-policy.org/Updates/Update39_data.htm.)


Still higher food prices are likely in the second quarter as soybeans have
recently hit 15-year highs and wheat and corn 7-year highs. Prices of
livestock products that require large amounts of grain are particularly
sensitive to higher grain prices. By contrast, bread prices do not usually
rise much because wheat typically accounts for less than one-tenth the
cost of a loaf of bread. Even a doubling of wheat prices would not greatly
increase bread prices.

Food prices are rising almost everywhere. In Russia, bread shortages
pushed the price of bread in February up 38 percent compared with February
2003. This so alarmed the government that it restricted wheat exports by
imposing an export tax of 35 euros per ton.

In South Africa, corn futures prices have climbed in early 2004. The price
of white maize, the principal food staple, rose by more than half between
December 2003 and January 2004. Yellow maize, used mostly for livestock
feed, climbed by 30 percent during the same period.
Higher prices reflect sagging production in the face of soaring demand as
the world continues to add more than 70 million people a year and as
incomes rise, enabling more of the world's people to consume grain-based
livestock and poultry products.

Growth in world grain production is lagging behind the growth in demand
largely because environmental trends, such as spreading deserts, falling
water tables, and rising temperatures, are shrinking harvests in many
countries. Consider, for example, Kazakhstan, the former Soviet Republic
that was the site of the Virgin Lands Project launched in the 1950s. To
expand grain production, the Soviets plowed an area of virgin grasslands
that exceeded the wheat area of Australia and Canada combined. It
dramatically boosted production, but by 1980 soil erosion was undermining
productivity. During the 24 years since then, half the country's grainland
area has been abandoned.

During the late 1980s, Saudi Arabia launched an ambitious plan to become
self-sufficient in wheat. By tapping a deep underground aquifer, the
Saudi's raised grain output from 300,000 tons in 1980 to 5 million tons in
1994. Unfortunately the aquifer could not sustain large-scale pumping and
by 2003 the wheat harvest had fallen to 2.2 million tons. Nearby Israel,
faced with dwindling water supplies, is no longer irrigating its small
remaining area of wheat, which means that dependence on imported grain,
already over 90 percent, will climb still higher.

China is the first major food producer to face reduced harvests partly
because of expanding deserts and aquifer depletion. Some 24,000 Chinese
villages have either been abandoned or have had their farm economies
seriously impaired by invading deserts. In the arid northern half of the
country where most of the wheat is grown, tens of thousands of wells go
dry each year. These environmental trends, combined with weak grain prices
that lower planting incentives, shrank the harvest from its peak of 123
million tons in 1997 to 86 million tons in 2003, a drop of 30 percent.

Perhaps the most pervasive environmental trend that is shrinking grain
harvests today is rising temperature. When the U.S. Department of
Agriculture released its September 2003 monthly world crop estimates, it
reduced the projected world grain harvest by 35 million tons from its
August estimate. This drop, equal to half the U.S. wheat harvest, was due
almost entirely to the intense August heat wave in Europe, where
crop-withering temperatures shrank harvests from France in the west
through the Ukraine in the east.

In 2002 record heat and drought combined to shrink harvests in both India
and the United States. Record and near-record temperatures in key
food-producing countries accounted for a large share of the record world
grain shortfalls of 91 million tons in 2002 and 105 million tons in 2003.


The question now is whether farmers can expand the grain harvest this year
enough to eliminate the huge deficit of last year. Unfortunately there are
no efforts underway that are sufficient to reverse the expansion of
deserts, the fall in water tables, or the rise in temperatures that are
shrinking harvests in key countries. In the absence of such an effort,
food prices are likely to continue rising.

NOTE: The next Eco-Economy Update, scheduled for release on May 5 will
analyze the harvest prospect for this year.

# # #


American Farm Bureau Marketbasket Survey, First Quarter 2004

First Quarter First Quarter
Item 2003 2004 Change
(in dollars) (percent)

Ground chuck
(1 pound) 2.10 2.48 +18
White bread
(20-ounce loaf) 1.32 1.36 + 3
Cheerios
(10-ounce box) 2.78 3.00 + 8
Apples
(1 pound) 1.05 1.22 +16
Whole fryers
(1 pound) 1.05 1.24 +18
Pork chops
(1 pound) 3.10 3.42 +10
Eggs
(1 dozen) 1.22 1.59 +29
Cheddar cheese
(1 pound) 3.30 3.46 + 5
Bacon
(1 pound) 2.91 3.00 + 3
Mayonnaise
(32-ounce jar) 3.14 3.27 + 4
Russet potatoes
(5-lb bag) 1.89 1.96 + 4
Sirloin tip roast
(1 lb) 3.21 3.52 +10
Whole milk
(1 gallon) 2.80 2.87 + 2
Vegetable oil
(32-oz bottle) 2.25 2.76 +23
All-purpose flour
(5-lb bag) 1.53 1.62 + 6
Corn oil
(32-oz bottle) 2.41 3.09 +28

Source: American Farm Bureau Federation


Additional data and information sources at www.earth-policy.org or contact
jlarsen(at)earth-policy.org
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