Wikinvest Wire

The era of cheap food is over

Friday, April 18, 2008

That is one spooky looking image on the cover of this week's Economist magazine - it must be that weird, threatening cloud on the right.
The story that goes along with the cover is no less foreboding.

The silent tsunami
Food prices are causing misery and strife around the world. Radical solutions are needed

PICTURES of hunger usually show passive eyes and swollen bellies. The harvest fails because of war or strife; the onset of crisis is sudden and localised. Its burden falls on those already at the margin.

Today's pictures are different. “This is a silent tsunami,” says Josette Sheeran of the World Food Programme, a United Nations agency. A wave of food-price inflation is moving through the world, leaving riots and shaken governments in its wake. For the first time in 30 years, food protests are erupting in many places at once. Bangladesh is in turmoil (see article); even China is worried (see article). Elsewhere, the food crisis of 2008 will test the assertion of Amartya Sen, an Indian economist, that famines do not happen in democracies.

Famine traditionally means mass starvation. The measures of today's crisis are misery and malnutrition. The middle classes in poor countries are giving up health care and cutting out meat so they can eat three meals a day. The middling poor, those on $2 a day, are pulling children from school and cutting back on vegetables so they can still afford rice. Those on $1 a day are cutting back on meat, vegetables and one or two meals, so they can afford one bowl. The desperate—those on 50 cents a day—face disaster.

Roughly a billion people live on $1 a day. If, on a conservative estimate, the cost of their food rises 20% (and in some places, it has risen a lot more), 100m people could be forced back to this level, the common measure of absolute poverty. In some countries, that would undo all the gains in poverty reduction they have made during the past decade of growth. Because food markets are in turmoil, civil strife is growing; and because trade and openness itself could be undermined, the food crisis of 2008 may become a challenge to globalisation.

Rich countries need to take the food problems as seriously as they take the credit crunch...
Corn-based ethanol production in the U.S. is, of course, a huge part of the problem and in Asian countries where the currency is pegged to the U.S. dollar, a weaker dollar makes rising food prices even more problematic.

As evidenced by recent increases in the Chinese and Vietnamese currencies, the threat of civil unrest is proving to be much more effective than any arm-twisting by U.S. officials in cajoling policymakers to let the local currency strengthen.

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Carol said...

I think the clouds are creepy because they look like those little spider balls hanging down from a spider web where captured prey is entombed, ready to be eaten later.

Anonymous said...

Aren't magazine covers contrary indicators?

Tim said...

Barry commented on this last week in Economist Cover: The Great American Slowdown.

"One of the things that people get wrong all the time is the contra meanings of magazine covers. This is a subject we have discussed for quite some time around here.

The assumption is that if something shows up on a mag cover, whatever the subject is must therefore be all over, hence, its time to go the other way. This is a fundamental misunderstanding of what the cover indicator is all about.

The short version is that when a long running trend, well represented by consensus opinion and stock prices, finally bubbles up to the front of a major magazine cover, THATS WHEN its very very late in the cycle. Hence, it is a contrary indicator. "

Greyhair said...

Yeah, I know. I read Barry. I was just poking you a bit.

d said...

This is why I dislike the economist (or its audience). This story should have been printed at least two years ago.

We are now in a situation which food prices may be stabilizing.

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