After the Oil Crisis, a Food Crisis?

After the Oil Crisis, a Food Crisis?

Is the world headed for a food crisis? India, Mexico and Yemen have seen food riots this year. Argentines boycotted tomatoes during the country’s recent presidential elections when the vegetable became more expensive than meat; and in Italy, shoppers organized a one-day boycott of pasta to protest rising prices. In late October, the Russian government, hoping to ease tensions ahead of parliamentary elections early next year, announced a price freeze for milk, bread and other foods through the end of January.

What’s the cause for these shortages and price hikes Expensive oil, for the most part.

The United Nations Food and Agricultural Organization reported last week that, at nearly $100 a barrel, the price of oil has sent the cost of food imports skyrocketing this year. Add in escalating crop prices, the FAO warned, and a direct consequence could soon be an increase in global hunger — and, as a consequence, increased social unrest. Faced with internal rumblings, “politicians tend to act to protect their own nationals rather than for the good of all,” says Ali Ghurkan, a Rome-based FAO analyst who co-authored the report. Because of the lack of international cooperation, he adds, “Worldwide markets get tighter and the pain only lasts longer.”

What’s more, worldwide food reserves are at their lowest in 35 years, so prices are likely to stay high for the foreseeable future. “Past shocks have quickly dissipated, but that’s not likely to be the case this time,” says Ghurkan. “Supply and demand have become unbalanced, and… can’t be fixed quickly.”

The world’s food import bill will rise in 2007 to $745 billion, up 21% from last year, the FAO estimated in its biannual Food Outlook. In developing countries, costs will go up by a quarter to nearly $233 billion. The FAO says the price increases are a result of record oil prices, farmers switching out of cereals to grow biofuel crops, extreme weather and growing demand from countries like India and China. The year 2008 will likely offer no relief. “The situation could deteriorate further in the coming months,” the FAO report cautioned, “leading to a reduction in imports and consumption in many low-income food-deficit countries.”

Hardest hit will likely be sub-Saharan Africa, where many of the world’s poorest nations depend on both high-cost energy as well as food imports. Cash-poor governments will be forced to choose between the two, the FAO says, and the former has almost always won out in the past. That means more people will go malnourished. Further exacerbating the problem are the current record prices for freight shipping brought on by record fuel prices. An estimated 854 million people, or one in six in the world, already don’t have enough to eat, according to the World Food Programme.

Nearly every region of the world has experienced drastic food price inflation this year. Retail prices are up 18% in China, 17% in Sri Lanka and 10% or more throughout Latin America and Russia. Zimbabwe tops the chart with a more than a 25% increase. That inflation has been driven by double-digit price hikes for almost every basic foodstuff over the past 12 months. Dairy products are as much as 200% more expensive since last year in some countries. Maize prices hit a 10-year high in February. Wheat is up 50%, rice up 16% and poultry nearly 10%.

On the demand side, one of the key issues is biofuels. Biofuels, made from food crops such as corn, sugar cane, and palm oil, are seen as easing the world’s dependence on gasoline or diesel. But when crude oil is expensive, as it is now, these alternative energy sources can also be sold at market-competitive prices, rising steeply in relation to petroleum.

With one-quarter of the U.S. corn harvest in 2007 diverted towards biofuel production, the attendant rise in cereal prices has already had an impact on the cost and availability of food. Critics worry that the gold rush toward biofuels is taking away food from the hungry. Jean Ziegler, the U.N. Special Rapporteur on The Right to Food, recently described it as a “crime against humanity” to convert food crops to fuel, calling for a five-year moratorium on biofuel production.

Leaders in the biofuel industry respond that energy costs are more to blame for high food prices than biofuels. “Energy is the blood of the world, so if oil goes up then other commodities follow,” Claus Sauter, CEO of German bioenergy firm Verbio said following Ziegler’s comments. Others argue that cleaner-burning biofuels could help stem the effects of climate change, another factor identified by the FAO as causing food shortages. Ghurkan notes that scientists believe climate change could be behind recent extreme weather patterns, including catastrophic floods, heat waves and drought. All can diminish food harvests and stockpiles. But so can market forces.