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And the culprit is ...

Posted by Richard Monday, May 05, 2008 , ,

It has been an article of faith amongst pundits commenting on the "global food crisis" that one of the factors contributing to the food shortage has been growing prosperity in developing nations, particularly in China and India. There, it is held, that the move from vegetable to meat diets has had a significant effect on supplies, as grain is fed to more "inefficient" animals.

Not so says the Indian Business Standard citing recent FAO figures, which show that, in the 2006-07 period, China's share of the global grain harvest is projected to have come down from 18.53 to 18.48 percent.

India - which is the world's second largest wheat producer, dwarfing the United States with 40 percent more production – is also in the clear. Although the country accounts for a sixth of the world population, it is estimated to have consumed 9.37 percent of world cereals in 2007-08, almost the same as 9.36 percent in the previous year.

As to the actual consumption of cereals, the Indian market is projected to have grown 2.17 percent from 193.1 million tons in 2006-07 to 197.3 million in 2007-08, while that in China has risen a mere 1.8 percent from 382.2 million tons to 389.1 million.

Thus, it transpires, the real villain of the piece, it seems – according to FAO data – is unequivocally the United States. In the same period, its consumption of cereals has been projected to have grown 11.81 percent from 277.6 million tons to 310.4 million. Furthermore, the US share of the global crop had gone up from 13.46 percent in 2006-07 to 14.74 percent.

To the surprise of very few, a large part of this spike is directly the result of biofuel made from corn, with the US having used 30 million tons of corn for that purpose. Overall, the FAO data show that the usage of corn in the US to make biofuel increased two-and-a-half times between 2000 and 2006.

Elsewhere, the EU also takes some of the blame for the crisis, with Liam Halligan of The Sunday Telegraph business section picking up on the extraordinary claim by Michael Barnier last week that the CAP is a "good model" for food production.

Apart from the usual suspects, Halligan blames "our bloated farm subsidies" which have, over many years, held back the growth of agricultural capacity across the developing world. They have also stymied the emergence of large-scale agro-industry in many parts of the world.

That indeed may have been an effect, but to this we need to add the more recent performance of the EU commission. Having badly over-estimated the EU-wide crop yield for 2007, it sold off its intervention stocks at knock-down prices in anticipation of a bumper harvest. When this did not materialise, member states – which normally export cereals globally – had to import 18.9 million tons, adding to pressure on already tight global stocks.

Anyhow, if the lion's share of the blame can be placed at the door of the US, farmers throughout the world are riding to the rescue. The US has recorded a six percent rise in winter wheat plantings for this year, the EU is projecting an overall 15 percent, the former Soviet Union is up eight percent and Canada has announced that 2008 wheat seedings could jump 16 percent.

Nevertheless, persistent reports of poor weather in North America have indicated that farmers are still having difficulty in planting spring seed, while low temperatures are holding back winter wheat development. A spell of good weather and a hot summer could dispel any pessimism, but concerns are building that yields might be adversely affected.

Certainly, the markets are nervous. From their recent low of $8.01 a bushel, 40 percent below its record peak of $13.50 a bushel in February, July wheat futures have rebounded to climb nine cents and prices well over the $9-mark are being forecast. Everything depends on the weather – as it always does.

Where is that global warming when you really need it?

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