By Evan Fraser, Special to CNN
Editor’s note: Evan Fraser is an associate professor of geography at the University of Guelph in Canada and author of Empires of Food: Feast, Famine and the Rise and Fall of Civilizations. The views expressed are his own.
With this summer’s terrible weather decimating America’s corn crop, pundits are suggesting that a food crisis is brewing. This isn’t an idle concern. In 2008, soaring food prices prompted sometimes violent unrest in dozens of countries. In 2010, drought and wildfire destroyed 25 percent of Russia’s wheat; the Kremlin banned grain exports. This sent food prices up, too, triggering the first protests in Tunisia, Algeria and Egypt that ultimately formed the Arab Spring. Now, drought in the United States has wiped out between 20 percent and 30 percent of what corn farmers thought they were going to harvest, while corn prices have soared to all-new highs.
Will this year’s events send crowds into the streets to topple governments?
Two U.N. reports published earlier this month shed contradictory light on this question. The first report is optimistic. The September Food Price Index published by the U.N.’s Food and Agriculture Organization (FAO)shows that the price of food did not rise between July and August. More importantly, the price of cereals, when taken as a whole, remained stable. This is very good news. And while cereals are still expensive relative to historic levels, prices are a bit below those that sparked riots in 2008 and 2010. One reason for this is that thanks to good harvests last year and the year before, we have a fair bit of food stored, and hence have a bit of a buffer. Jose Graziano da Silva, the director general of the FAO, stated “This is reassuring…although we should remain vigilant, current prices to do not justify talk of a world food crisis.”
The second report, also published by the FAO, focuses on the amount of food we produce and use. It is considerably less optimistic and forecasts that in 2012/13 the world will eat more than it will produce. What’s more, forecasters have downgraded estimates for all of our most important crops: “coarse grains” (which includes the U.S. corn crop) are down 52 million tons, wheat is down 15 million tons and rice is down 6 million tons. This means 2012 to 13 is set to be the sixth year out of the past eleven that we’ve consumed more than we’ve grown.
A key point in the report is how food stocks help maintain global food security. The United Nations calculates food stocks through what’s called the “stock-to-use” ratio, which is a measure of the surplus food we take from one year to the next. In 2002 to 2003, we had a 25 percent stock-to-use ratio for all grains. This was a respectable buffer. But it’s been steadily falling. Next year, our stock-to-use ratio will likely be 20 percent. This is bad news, especially for people in the developing world who spend a large share of their income on food, as it means there is nothing standing between their food budget and a price shock triggered by bad weather.
But correcting this problem is far from simple because most nations have adopted a just-enough, just-in-time food system that relies on the market to move food around. While this is economically efficient, it takes strategic planning away from policy makers.
For instance, early in 2012, the U.S. government announced that American corn farmers were on their way to producing a world record harvest. Merchants, fearing a glut and price crash, reduced inventories and the stock-to-use ratio for corn (and the other coarse grains) dropped to a mere 13.3 percent. Then, the drought hit, and the U.S. Department of Agriculture realized that their estimates had been wildly optimistic. With little corn in reserve, commodity markets soared.
But as noted, prices haven’t gone as high as they might have. This is partly because we have decent supplies of wheat (stock-to-use ratio is 25 percent) and rice (34 percent), so things may not boil over this year. But, even if we’re OK now, by next summer, we’ll have used up this buffer and consumers in the poorer parts of the world will once again be exposed to the effects of anything that hurts production.
Maintaining a large stock-to use buffer for food is a bit like holding onto a large cash reserve in an investment portfolio. When times are good – things are stable and the economy is growing – it makes sense to reduce your cash and invest more of your money to get better returns. However, the need for household stability suggests that to weather economic storms, people should save more and create a bit of an economic security blanket to protect their families.
But just like saving your money means you miss all sorts of opportunities you might otherwise enjoy, storing food as a buffer is costly, too. For a poor nation, building the infrastructure to maintain food stores is an expense that few can afford. Managing such systems, meanwhile, has in the past also proven rife with problems such as corruption.
Yet despite these challenges, building the capacity to maintain larger food stores is necessary. Since virtually no one expects the weather over the next few decades to be as accommodating as in the past we need to take the opportunity now to build up our reserves. Only when we have a bigger buffer between urban consumers and the dangerous swings of international commodity markets will we be able to prevent a repeat of the food related political unrest of the past four years.