Wheat shortage could make things worse

[Mech]

LET US NEVER FORGET THE GLOBALISTS OWN WORDS............

“Food is power. We use it to change behavior. Some may call that bribery. We do not apologize.”

~Catherine Bertini, Executive Director of the World Food Program, Sept 1995.






Wheat shortage pushing prices to record highs

Pizza makers, grocers, consumers all feeling effects
Friday, February 29, 2008

www.dailygazette.com/news/2008/feb/29/0229_wheat/


CAPITAL REGION — It used to be that flour was the reliably cheap part of making a pizza.

“I’ve owned the business here for about 15 years and flour has always ranged around $8 to $10 for a 50-pound bag of flour. It’s getting up close to $30 now. It’s gone up about 200 percent,” said Jim Smith, owner of High Bridge Pizzeria in Rotterdam.

Record high wheat prices are squeezing the profit margins of flour wholesalers and retailers in the Capital Region, as well as the wallets of consumers.

Spring wheat for March delivery fell $1.75 Thursday to close at $18.25 a bushel on the Minneapolis Grain Exchange. It traded as high as $25 a bushel this week. Wheat historically trades at $3 to $7 a bushel.

George Walsh, the owner of grocery wholesale company By George in Ballston Lake, said his company sells about 2,000 50-pound bags of flour per week.

“[The price] really escalated over the last eight weeks. It’s still going up. They’re talking about $50 bags of flour. I had the sales manager for General Mills call me up and [tell me] flour’s probably going to hit $35 your cost. Now it’s costing us $28.50, which is ridiculous. Last month it was $15.80,” Walsh said. “It’s terrible. There is a big shortage of wheat. It’s almost impossible for these guys making a pizza.”

The U.S. Dept. of Agriculture announced Feb. 8 that the U.S. wheat stockpile was the lowest in 50 years, 272 million bushels.

Price Chopper spokeswoman Mona Golub said she has not heard rumors of a wheat shortage, but the wheat price spikes have affected pricing at every supermarket and grocery store.

“This is going to affect any and all products that contain wheat. So certainly fresh bakery and packaged bakery and many, many, many packaged products across the grocery shelves will be affected in months to come,” she said.

In New York state, 100,000 acres of winter wheat was planted this past fall, down 5,000 acres from 2006, according to USDA’s National Agricultural Statistics Service New York Field Office.

For pizza makers, the flour price spike is a double whammy, as cheese prices have also been rising during the past year, in part because of lower-than-normal cheese production and higher demand.

“You get probably 200 to 300 pizzas out of a bag of flour, compared to cheese when it doubled in price. You don’t get that many pizzas out of a pound of cheese,” Smith said. “Everything has gone up. Delivery trucks, look at gas prices. The whole industry has gone crazy. We really don’t have much of a profit margin. Our prices are too low as it is. You tell people that and they don’t want to hear it.”

Some big pizza chains, such as Pizza Hut and Papa John’s International Inc., last year raised the price of their cheese-only pizzas to the same amount as one-topping pizzas at company-owned stores.

Chris Sternberg, spokesman for Louisville, Ky.-based Papa John’s, said in an e-mail Thursday that the chain last fall locked in the purchase of part of the wheat supply needed for 2008. “Through this strategy, which we have continued in 2008, our restaurants are somewhat insulated from the recent run-up in the cost of wheat during the first half of the year.” He said the company is controlling inventory and working with suppliers to control costs.

The spike in cheese costs has been partially attributed to the run-up in dairy cattle corn feed prices caused by increased federal subsidy of the U.S. ethanol industry. Ethanol is alcohol-fuel, which in the United States is mostly made from corn. Increased corn planting means decreased wheat planting.

“The government’s got all of the farmers growing corn because of this [ethanol] stuff. You save a nickel a gallon, but you kill the wheat production,” Walsh said.

In 2007, New York farmers harvested 69.9 million tons of corn from 1.1 million acres of land, up nearly 8 million tons from 2006, when only about 1 million acres was put into corn production, according to the US

[Mech]

Soaring Food Prices Putting U.S. Emergency Aid in Peril

Anthony Faiola
Washington Post
Saturday, March 1, 2008

The U.S. government's humanitarian relief agency will significantly scale back emergency food aid to some of the world's poorest countries this year because of soaring global food prices, and the U.S. Agency for International Development is drafting plans to reduce the number of recipient nations, the amount of food provided to them, or both, officials at the agency said.

USAID officials said that a 41 percent surge in prices for wheat, corn, rice and other cereals over the past six months has generated a $120 million budget shortfall that will force the agency to reduce emergency operations. That deficit is projected to rise to $200 million by year's end. Prices have skyrocketed as more grains go to biofuel production or are consumed by such fast-emerging markets as China and India.

Officials said they were reviewing all of the agency's emergency programs -- which target almost 40 countries and zones including Ethiopia, Iraq, Somalia, Honduras and Sudan's Darfur region -- to decide how and where the cuts will be made.


"We're in the process now of going country by country and analyzing the commodity price increase on each country," said Jeff Borns, director of USAID's Food for Peace, the organization's food aid arm. "Then we're going to have to prioritize."

The reductions, international relief agencies say, will seriously complicate already strained efforts to combat global hunger, particularly in Africa, Central Asia and Latin America. Poor countries in those regions are struggling to cope with record food price surges, which have made it difficult for aid groups to sustain their operations in some countries.

The cuts will likely have a direct impact on major USAID partners, including aid groups and the United Nations World Food Program, the largest international provider, which counts on U.S food aid for 40 percent of its distribution.

The U.N. program is confronting similar price pressures. It announced this month that it was facing a $505 million shortfall due to soaring food and fuel costs, and would cut distribution if it did not receive new funds. Meanwhile, need is increasing. Afghanistan, for instance, recently put in an emergency request for $77 million to cope with skyrocketing prices that have put key staples out of reach for more and more Afghans.

[Mech]

Food and the spectre of Malthus

By Mark Thirlwell

Published: February 26 2008 17:53 | Last updated: February 26 2008 17:53

February has been the month for revisiting old and unpleasant economic concepts. Last week, financial markets experienced that 1970s feeling, as a combination of rising inflation and unemployment in the US triggered unwelcome memories of the decade of stagflation that ended the postwar golden age and the Keynesian consensus. Then came this week’s report that the United Nations’ world food programme might have to ration food aid. Set against a backdrop of rising food prices worldwide – global food prices have now risen by more than 75 per cent since their lows of 2000, jumping more than 20 per cent in 2007 alone – the news revived fears from a much earlier era, conjuring up the Reverend Thomas Malthus.

Soaring food prices have also revived some more contemporary worries. When China’s annual inflation rate spiked to an 11-year high in January on the back of an 18 per cent increase in food prices, China-watchers found themselves casting their minds back to the food price rises of 1988 and the social disturbances, protests and civil unrest that followed. Inflation is often cited as one of the factors behind the major demonstrations in 1989.

This rise in prices is a consequence of both demand and supply trends. On the demand side, the key factor has been the strong consumption growth in emerging markets, which in turn has been powered by those countries’ impressive income gains. China, for example, has accounted for up to 40 per cent of the increase in global consumption of soyabeans and meat over the past decade. At the same time, a series of supply-side disruptions in key commodity markets ranging from drought to disease have been at work.

Perhaps the most important drivers of price gains over the past year are developments in world energy markets. High oil prices have encouraged a policy focus on biofuels, including lashings of generous financial support. Production has responded quickly to these incentives: the World Bank reports that the US has used 20 per cent of its maize production for biofuels and the European Union 68 per cent of its vegetable oil production. This change in usage has boosted prices, reduced the supply of these crops available for food and encouraged the substitution of other agricultural land from food to biofuel production.

This is not the first time in modern economic history that the Malthusian spectre of global food shortages has stalked the world economy. Surges in food prices in the 1970s and then again in the mid-1990s both prompted warnings that agricultural capacity was failing to keep pace with a growing world population. Each time, the prices jumped it proved to be temporary as supply responded. There are good reasons for believing that this latest bout of market disequilibrium will ultimately reach the same resolution. That said, however, there are two important caveats to set against such an optimistic reading of current circumstances.

First, the lag in supply response to the stimulus provided by higher prices may prove to be of greater duration than its predecessors, to the extent that the current changes in world energy markets – and hence the associated demand for biofuels – are likely to be lasting ones. With climate change and environmental degradation threatening agricultural capacity in several key regions, the elasticity of past supply responses may prove to be a poor guide to the future.

Second, during the extended period in which supply continues to lag behind demand there are likely to be significant social and economic costs. Three in particular stand out.

Most important, a period of protracted higher food prices will be bad news for many of the world’s poorest people and its poorest economies. While the share of food in the consumption basket of a rich country such as the US is relatively low, at about 10 per cent, it averages about 30 per cent in China and more than 60 per cent in sub-Saharan Africa. Those countries that are most vulnerable are the low-income net food importers. Higher food prices add more strain to import bills that have often already been stretched by higher energy prices. Several of the poorest economies fall into this category and are heavily dependent on food aid to meet their needs. But the worldwide volume of such aid has stagnated for the past two decades and, what is worse, the quantity of aid delivered tends to fall as prices rise, given that a large proportion comprises a fixed annual dollar amount.

Next, there are important social strains to be managed. These may be particularly problematic for those emerging markets that are already struggling to deal with the consequences of growing inequality. Granted, higher food prices are something of a two-edged sword here, since higher agricultural earnings could reduce rural-urban income disparities. But the big losers are likely to be the urban poor, typically a politically volatile group, while many of the rural poor will also suffer.

Finally, higher food prices will call for tighter monetary policy. Given the disparity in the share of food in consumption baskets, and the fact that rich country central banks tend to exclude food prices from their core inflation measures, the policy reaction will tend to be greater in developing economies. Authorities may also be tempted by price controls and other direct measures. However, rich country central banks will also have to keep a close watch on any spillover effects that tighter monetary policy could have on non-food prices.

The writer is director of the international economy programme at the Lowy Institute for International Policy in Sydney

Copyright The Financial Times Limited 2008

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