World food shortage of 2008

In the early part of 2008 the world started to wake up to a growing unavailability of basic foodstuffs &mdash; particularly grains, but other foods were included as well. The main cause was speculation run wild on commodities futures contracts and their derivatives, particularly courtesy of Goldman Sachs. No longer maintaining food reserves is also postulated as an important factor.

In less than a year, the price of wheat rose 130 per cent and soya by 87 per cent. In May 2008 it was reported that rice prices had jumped 50 percent in the previous two months, having at least doubled since 2004, and that there were concerns prices could rise a further 40 percent in the following months.

Speculation
The trouble is less about the total amount of food (which there's been enough of all along), and more about getting it where it needs to be. The standard mechanism is economics and politics. But these had sufficient cracks in them for speculators to run wild.

No reserves
Countries used to keep food reserves of three to six months. Now it's down to a couple of weeks (for reasons that appeared excellent to accountancy). The catch is that reserves served as an important buffer on price volatility. Oxfam posits that a 105 million ton food reserve (not actually all that much at all) would have buffered most of the effects of the 2007-2008 price problems. The G20 is now reconsidering the value of food reserves in general.

Increases in demand
As China's emerging middle classes have become richer, their consumption of meat has increased by more than 150 percent per head since 1980. In those days, meat was scarce, rationed at around 1kg per person per month and used sparingly in rice and noodle dishes.

Today, the average Chinese consumer eats more than 50kg of meat a year and the price of pork in China more than doubled in the five years from 2006. To feed the millions of pigs on its farms, China has to import grain on a huge scale, pushing up its prices worldwide.

Demand for variety, quality
While there may be "plenty of food to go around", more and more people require more variety; beans and rice are simply not sufficient. Meat is no longer considered a luxury but a standard; the demand for tuna (even the cheap canned variety) has pushed several of the most valued tuna species to near extinction; and year round production of fruits and vegetables puts a serious strain on the productive land. And don't get me started on how many varieties of fish are now endangered due to demand for their exotic flavor.

Reductions in supply
Supply has been hit by various factors.

Biofuel
The rising demand for ethanol, a biofuel that is mixed with petrol to bring down prices at the pump, has transformed the parts of the American landscape. Today this heartland of the Midwest is America's cornbelt, with the corn crop stretching as far as the eye can see. Iowa produces almost half of the entire output of ethanol in the US, with 21 ethanol-producing plants as farmers tear down fences, dig out old soya bean crops, buy up land and plant yet more corn. It has been likened to a new gold rush.

But none of it is for food. And as the demand for ethanol increases, yet more farmers will pile in for the great scramble to plant corn for ethanol -- instead of for grain. The effect will be to further worsen world grain shortages. However, about 80% of corn grown in the U.S. is used for animal feed. )

The oil palm tree is the most highly efficient producer of vegetable oil, with one acre yielding as much oil as eight acres of soybeans. Vegetable oils provide an important source of calories in the developing world, and their shortage has contributed to the food crisis. At the same time, demand for palm oil has increased, as a replacement for partially hydrogenated soybean and/or cottonseed oil of which consumers have become wary.

A drought in Indonesia and flooding in Malaysia has hit the crop which is now being used to make biodiesel. While farmers and plantation companies hurriedly clear land to replant, it will take time before their efforts bear fruit. Palm oil prices jumped nearly 70 per cent in 2007, hitting the poorest families. When a store in Chongqing in China announced a cooking-oil promotion in November, a stampede left three dead and 31 injured.

Added to the above productivity in the developing world has been declining since the “Green Revolution” delivered by western agricultural methods. Insect resistance to pesticide, desertification and increased soil salinity all play a part.

Environmental problems
Australia usually expects to harvest around 25 million tonnes a year. But, because of a five-year drought, thought to have been exacerbated if not caused by climate change, it managed just 9.8 million tonnes in 2006.

Production and transportation costs
Oil at around 120 dollars per barrel -- which it was for a few months in 2008 -- has an enormous effect on production costs. The production of fertilizer is very energy intensive; pumps which move water to irrigate land cost more to operate; farm machinery costs more to operate; and transportation of the goods to market is more expensive.