The Global Food Crisis

I had posted last time about how the rising price of wheat is usually a larger factor in local politics than other matters. The thought came back to me when I was reading a recent Newsweek article about the protests in Tibet. One of the major complaints of protesters was the rise in food prices, though they placed it in the context of Chinese claims of great economic growth and investment in Tibet over the last few years. The protesters felt that the gains from this increasing wealth was only going to Han Chinese while they had to face increasing food prices.

Tibet is not the only place where this has happened. The internet is littered with news reports about rising prices from Canada to Gaza. This interesting article at the Global policy Forum asks the question 'Are We Approaching a Global Food Crisis?' and has some relevant facts and figures about global food prices.

As the article rightly points out the rises in food prices have a much larger impact in households with low incomes, and thus on poorer countries:

"Most consumers in rich countries are affected only marginally by higher food prices. But in poor countries, many consumers spend most of their income on food. So, higher prices mean smaller portions, fewer meals and consuming foods with lower nutritional value. To afford essential food needs, many low and middle-income households must also cut spending on education and health."

Furthermore, as the article points out, 70% of all developing countries are net importers of food, and the need to import food is a burden on the economy made worse by rising prices.

In Pakistan's case, in a good year, Pakistan's agricultural production more than meet's its requirement for wheat, while in a bad year it is forced to import. The government controls the wheat market by setting the price of wheat that is provided to the millers and then again setting the price of flour in the market. This price is not allowed to fluctuate beyond a narrow band, thereby ensuring that the price of flour remains low. Due to the rise in global prices, millers would make much more money if they exported wheat than if they sold it in the country, but the government only allows the export of flour that is surplus to the country's requirements.

The wheat crisis at the end of 2007 was sparked by a combination of greed and incompetence when the previous government announced a record bumper crop in wheat, with fudged statistics, and quickly granted permission to export half a million tonnes of wheat at $200 a tonne. When it became apparent that this bumper cop only existed on paper, various people in the flour supply chain (millers, retailers etc.) realized there was going to be a shortage, which at some point in the future was going to drive prices up, so they began hoarding flour rather than releasing it for sale at current, lower prices. There were also allegations of smuggling of wheat to Afghanistan (where domestic production of wheat has all but been replaced with opium anyway). However, I'm not sure how substantial the loss of wheat is through this channel. The previous government then heroically ignored the problem until their tenure was up and dumped the entire affair in the lap of the caretaker government that replaced them. They were forced to import wheat at the then global market rate of $500 per tonne and take various measures against hording.

Thus, while Pakistan would have faced the problem of food inflation anyway, the matter was made worse by a greed-induced artificial shortage.