Food is becoming the world’s new gold

"World Hunger"

04/27/2008

Food has become the new gold, and the world must cope with the new reality of more expensive prices.


By ANTHONY FAIOLA,
Washington Post
April 26, 2008


The globe's worst food crisis in a generation emerged as a blip on the big boards of America's great grain exchanges. At first, it seemed like little more than a bout of bad weather.

In Chicago, Minneapolis and Kansas City, traders watched from the pits early last summer as wheat prices spiked amid mediocre harvests in the United States and Europe and signs of prolonged drought in Australia. But within a few weeks, the traders discerned an ominous snowball effect -- one that would eventually bring down a prime minister in Haiti, make more children in Mauritania go to bed hungry, even cause Sam's Club to restrict U.S. sales of rice.

As prices rose, major grain producers battling inflation, caused in part by soaring oil bills, were moving to bar exports on a range of crops to control costs at home. It meant less supply on world markets even as global demand entered a fundamentally new phase. Already, corn prices had been climbing for months on the back of booming government-subsidized ethanol programs. Demand for soybeans was surging in China. But as supplies in the pipelines of global trade shrank, prices began shooting through the roof.

At the same time, food was becoming the new gold. Investors fleeing Wall Street's mortgage-related strife plowed hundreds of millions of dollars into grain futures, driving prices up even more. By Christmas, a global panic was building. With fewer places to turn, and tempted by the weaker dollar, nations staged a run on the American wheat harvest.

Foreign buyers, who typically seek to purchase one or two months' supply of wheat at a time, suddenly began to stockpile. This led major domestic U.S. mills to jump into the fray with their own massive orders, fearing that there would soon be no wheat left at any price.

"Japan, the Philippines, [South] Korea, Taiwan -- they all came in with huge orders, and no matter how high prices go, they keep on buying," said Jeff Voge, chairman of the Kansas City Board of Trade. Some traders walked off the floor for weeks at a time, unable to take the stress.

"We have never seen anything like this before," Voge said. "... But no matter the price, there always seems to be a buyer. ... This isn't just any commodity. It is food, and people need to eat."

Consequences: Riots and turmoil

The food price shock now roiling world markets is destabilizing governments, igniting street riots and threatening to send a new wave of hunger rippling through the world's poorest nations.

At least 14 countries have been racked by food-related violence. After hungry mobs and violent riots beset Port-au-Prince, Haitian Prime Minister Jacques-Edouard Alexis was forced to step down earlier this month. At least 14 countries have been racked by food-related violence. In Malaysia, Prime Minister Abdullah Ahmad Badawi is struggling for political survival after a March rebuke from voters furious over food prices. In Bangladesh, more than 20,000 factory workers protesting food prices rampaged through the streets two weeks ago.

To quell unrest, countries are digging deep to boost food subsidies. The U.N. World Food Program has warned of an alarming surge in hunger in areas as far-flung as North Korea and West Africa. The crisis, it fears, will plunge more than 100 million of the world's poorest people deeper into poverty, forced to spend more and more of their income on skyrocketing food bills.

"This crisis could result in a cascade of others ... and become a multidimensional problem affecting economic growth, social progress and even political security around the world," U.N. Secretary General Ban Ki-moon said.

Coping: No breakfast, little lunch

As farmers rush to plant more wheat now that profit prospects have climbed, analysts predict that prices may come down as much as 30 percent in the coming months. But that would still leave a year-over-year price hike of 45 percent, suggesting that the world must cope with a new reality of more expensive food.