19 August 2010

By Osman Mirghani

Is the world heading towards a food crisis?

If we believe the warnings of some experts, the answer is yes. However, if we believe in the reassurances from officials of international organizations, the answer is that the world may face a shortage in supply of some foodstuffs, along with a rise in prices, but we will not witness a crisis similar to what happened between 2007 and 2008. During this period, the inflation coupled with food shortages, especially for resources such as wheat and rice, led to raised tensions prompting government intervention to subsidize food prices.

The new crisis concerning the price of foodstuffs, or their supply, however limited, will have harmful repercussions on the global economy which is still trying to recover from the effects of the global financial crisis which raised fears of the collapse of a number of banks and major financial institutions. Reports indicate that wheat prices have risen by more than 50 percent since last June, and they could further increase due to lower volumes available on world markets. This follows the temporary ban on exports imposed by Russia, the largest producer [of wheat], after wheat crops were damaged by the heat wave and drought that has struck the country. Likewise India, the world’s second largest wheat producer, although it consumes most of what it produces, is suffering from floods and heavy rains, which have caused the destruction of a portion of its crops. Because single misfortunes seldom come alone, as they say, media reports have suggested that Australian wheat production has declined after swarms of locusts invaded local farms. Meanwhile, another [wheat] producing country is suffering, namely Canada, where the rainy summer may lead to crop failure.

All of this alludes to the possibility of a shortfall in world wheat supplies in the coming months, affecting numerous countries. Amongst these will be the Arab nations, who rely on importing this vital commodity from Russia, Canada and Australia.

The Food and Agriculture Organization (FAO) of the United Nations warned last June that food prices were heading towards a sharp increase of up to 40 percent, highlighting that the global production of wheat will decrease during the current year. The organization at the same time was able to reassure consumer countries and their populations, ruling out the food crisis that happened 2 years ago, given that America and Europe have managed to increase their production of wheat to compensate for the lack of supply from other places. But the problem is that the shortage in wheat will affect the prices of other goods such as rice, which is expected to witness an increase in demand, especially in India, Pakistan, China and the Gulf.

Amidst talk of this new crisis, one discovers that there is a ‘global casino’, where speculators gamble on food prices. Many experts point out that speculators in the international capital markets were responsible for the rising food prices in global markets, even before weather irregularities damaged crops in a number of producing countries. Furthermore the banks, which witnessed reduced opportunities and profits in the areas of mortgage lending, and buying and selling shares, in a number of industries hit by the global financial crisis, resorted to pumping funds into speculating on food prices. This tactic was on basis that speculating on commodities and foodstuffs guarantees returns, because they are expected to rise due to increased demand, especially from developing countries that are experiencing a significant increase in population growth.

The frustrating irony is that the banking sector, responsible for the current financial and economic crisis in the world, also carries responsibility for raising the prices of goods and foodstuffs in global markets. That is why organizations have emerged calling for the imposition of measures to regulate global food markets, and prevent speculators from influencing commodity prices. These calls have already resonated, and in some cases been taken up, as America finally drafted legislation to limit speculation on food prices, and the European Union also seems inclined to impose similar restrictions, so that people’s food is not at the mercy of speculators.

The strange thing is that the global banking system is behaving as if it learned nothing from the recent global crisis that put it under the microscope, and shook our confidence in it. Instead, it is waiting until the current storm passes over, and will then return things to the way they were. The world has become a hostage of the banking system, as whenever the system appears to be shaking, states rush its rescue with taxpayer’s money, because the collapse of the global financial system would mean chaos, demonstrations in the streets, and anarchy. Thus, the most that could happen today is that states agree to impose regulatory measures limiting the ‘lust’ which affects the banking system and the greed of it speculators.

It is true that there are poor and hungry, just as there are rich and prosperous in the world, but the real problem is greed. In the words of Mahatma Gandhi: “Earth provides enough to satisfy every man's need, but not every man's greed”.

Osman Mirghani is Asharq Al-Awsat's Senior Editor-at-Large

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