Food: dispersed demand and concentrated supply spells trouble

Oil has long been regarded as the commodity with the most potential for economic mischief, but food is making a case for itself this year. Since 2007, riots and protests over food prices have broken out in 30 countries, says the Atlantic.
Food supply problems have contributed to the recent spike in prices, becoming a source of international tensions. And the growth of the global food market has meant more food for billions of people, and a greater concentration of supply, says the Atlantic:

In 2006, the top five oil producers supplied 43 percent of the world's oil.

By comparison, the top five maize producers grew 77 percent of the world's supply; rice producers, 73 percent; beef and wheat producers, 66 percent each.

Because of this concentration, a supply disruption in even one place can ripple through the food market worldwide.

The creation of politically popular biofuel mandates by many of the world's biggest farming nations has been particularly disruptive. For example:

U.S. law requires that ethanol make up at least five percent of vehicle fuel (rising to 22 percent by 2022), and 30 percent of U.S. corn went toward ethanol production last year.

The U.S. government has claimed that biofuel demand is responsible for only three percent of the increase in global food prices over the past year, but a recent World Bank report estimated that figure to be 75 percent.

Moreover, the price hikes of the past three years threaten to push 100 million people back into poverty, erasing seven years of progress.

However, prices are anticipated to come down, but many experts believe they will remain far higher than in recent decades. This is a new era of food pricing, says The Atlantic.

Source: Elizabeth Chiles Shelburne, "The Great Disruption," The Atlantic, September 2008.

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FMF Policy Bulletin/ 9 September 2008