The burning of America’s corn belt in the worst drought in half a century is bad news for the world’s poor, bad news for food security, bad news for inflation and bad news for the policymakers trying to nurse the global economy back to health. Central bankers and finance ministers have been crying out for something unexpectedly positive to happen that would make their job easier: as it is, the threat of a disastrous US harvest is simply the latest in a series of negative shocks. Poor countries, where food makes up a larger chunk of family budgets, will be hardest hit by a third food crisis in five years. The World Bank is already on alert for an increase in hunger and malnutrition; previous spikes in food prices also led to widespread social unrest. Wheat and maize prices have both soared in the past couple of months by more than 40%; stocks of maize, in particular, are already dangerously low.
This comes at a time when demand for food is rising. Population growth and rising incomes in the bigger emerging market economies – China, India and Brazil – were already a cause for concern even before the US drought, but the price spike in recent weeks has underlined the growing pressures on the global supply chain. Research by the Overseas Development Institute shows that meat consumption in China has quadrupled since the economic reform programme began in 1978, but is still below European levels of 80kg a year per head. It takes 7kg of maize to produce 1kg of beef, and if Chinese levels of meat consumption were to rise from their current levels of 50kg a head per year to the 80kg a year average in Europe, maize exports would need to double. The World Bank says demand for food will double between now a 2030. The City believes Tuesday’s [14 August] cost of living figures for the UK will show a small fall, from 2.4% to 2.3%, and the Bank of England expressed confidence last week that it would take time for the ‘modest’ impact of rising global food prices to be felt. It may be the case that the weakness of the economy will keep inflation under downward pressure, but dearer food and more expensive petrol (the price of Brent crude hit $115 a barrel for the first time in three months on Monday) will maintain the squeeze on consumer incomes, further delaying recovery.
Source: The Guardian
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