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Globalization and the new world food crisis


April 27, 2008

Today’s Washington Post has an excellent story that I strongly recommend on recent rise in food prices worldwide and resulting international upheaval.

Its the exact story I would assign to my World Politics class– an example of how this thing we call Globalization brings international trade, poverty, financial speculation, climate change, domestic farm subsidies, energy prices, and environmentalism together for a perfect storm of rising food prices around the world, leading to massive world hunger, destabilizing governments, and turning much of world politics upside down. Moreover, this is a story that you can watch and feel, as you watch the price of bread at the grocery store climb up and up.

the [commodity] 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 American executives at Sam’s Club to restrict sales of large bags of rice….

“We have never seen anything like this before,” Voge said. “Prices are going up more in one day than they have during entire years in the past. 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.”

And that’s what makes this such a slow-moving tragedy–when oil prices rise, people can not drive and still eek out a way to survive. When food prices rise, its much, much harder to not eat.

Today’s article investigates the broad causes that led to the crisis(graphical depiction here).

The root cause of price surges varies from crop to crop. But the crisis is being driven in part by an unprecedented linkage of the food chain.

A big reason for higher wheat prices, for instance, is the multiyear drought in Australia, something that scientists say may become persistent because of global warming. But wheat prices are also rising because U.S. farmers have been planting less of it, or moving wheat to less fertile ground. That is partly because they are planting more corn to capitalize on the biofuel frenzy.

This year, at least a fifth and perhaps a quarter of the U.S. corn crop will be fed to ethanol plants. As food and fuel fuse, it has presented a boon to American farmers after years of stable prices. But it has also helped spark the broader food-price shock….

The global food trade never became the kind of well-honed machine that has made the price of manufactured goods such as personal computers and flat-screen TVs increasingly similar worldwide. With food, significant subsidies and other barriers meant to protect farmers — particularly in Europe, the United States and Japan — have distorted the real price of food globally, economists say, preventing the market from normal price adjustments as global demand has climbed.

To recap, this implicates:

  • Global Warming causing a drought
  • High oil prices, raising costs for farmers, shippers, and sellers
  • Ethanol and bio-fuels (meant to reduce the first two) sucking corn off the market
  • Farm subsidies distorting food prices
  • Lack of open markets
  • Development in large countries (China, India) leading to increased meat consumption
  • Integrated global commodities markets, allowing for speculation

And there are real political consequences to be felt. Governments toppled, people rioting, starvation–and this is only what we’ve seen so far. Far more is sure to come.

Readers are encouraged to follow the rest of the Post’s series, which will continue throughout this week.

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Dr. Peter Howard focuses on US foreign policy and international security. He studies how the implementation of foreign policy programs produces rule-based regional security regimes, conducting research in Estonia on NATO Expansion and US Military Exchange programs and South Korea on nuclear negotiations with North Korea.