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With world wheat prices now up 60% since January, countries are panicking over fear of impending shortages -- not just of wheat, but of related grains and even meats (since grain is needed to feed cows).
It's been just two weeks since I wrote a lengthy analysis about panic buying following a 30% spike in wheat prices.
Since then, prices have continued upward, and the panic has been taking a different form, as Russia and other wheat-producing countries consider a wheat export ban.
Russia has elections in December, and the politicians are worried about bread prices, and so Russia will probably announce either an export ban or a high export tariff. Ukraine and Indonesia, also large food exporters, are announcing export bans.
These announcements are causing further panic buying in other countries, including Egypt and India.
The demand for food crops for biofuels is increasing.
The result is historically high prices for cereal grains and related foods.
The surging food prices have "the potential for social tension, leading to social reactions and eventually even political problems," according to Jacques Diouf, director-general of the UN’s Food and Agriculture Organisation.
He particularly pointed to Mexico, where mass protests were triggered by rising corn prices.
When I discussed tortilla prices and the situation in Mexico last February, I pointed out that rising prices were causing a lot more problems than just political problems. In particular, it was causing the rise of increasingly violent drug cartels.
The UN's Diouf pointed out that, while food represents about 10-20% of consumer spending in industrialized countries, it represents 65% of in developing nations.
The continuing surge in food prices is extremely ominous. When a man
can't afford to feed himself and his family, then he has absolutely
nothing to lose by going to war, especially in densely packed
developing countries, where there are no other choices.
(08-Sep-07)
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