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The U.S. Drought and the Next Food Crisis

The 2009 FAO Hunger Report spoke about the food crisis of 2006 to 2008:

“The current crisis is historically unprecedented, with several factors converging to make it particularly damaging to people at risk of food insecurity. First, it overlaps with a food crisis that in 2006-08 pushed the prices of basic staples beyond the reach of millions of poor people. And, although they have retreated from their mid-2008 highs, international food commodity prices remain high by recent historical standards and volatile. Also, domestic prices have been slower to fall. At the end of 2008, domestic staple food prices remained, on average, 17 percent higher in real terms than two years earlier. The price increases had forced many poor families to sell assets or sacrifice health care, education or food just to stay afloat. With their resources stretched to breaking point, those households will find it difficult to ride out the economic storm.”

In my analysis, the cause of these increased prices for basic staples was the sharp increase, in the United States, in the amount of agricultural land devoted to growing corn for ethanol from 2004 to 2008 (yellow area in chart below).

The demand for corn for ethanol, combined with the demand for corn for feed and food, caused a sharp increase in the price of corn (red line in chart below).

As more agricultural land was shifted to corn for ethanol, less land was used for other crops, especially cereals. This led to an increase worldwide in the prices of corn, wheat, rice, soybeans, barley, and more. Corn prices rose first, and prices for many other food staples followed.

Subsequent to 2008, more agricultural land in other parts of the world was shifted to growing cereals, to take advantage of the increased commodity prices. Supply rose, reducing demand, thereby lowering prices somewhat. However, 2009 to 2010 prices remained elevated over the pre-2006 price levels.

What does this have to do with the drought in 2012? The drought devastated the U.S. corn crop, causing prices for corn to rise sharply, well above the 2006-2008 highs (see red line in chart above). The result is likely to be another food crisis, more severe than the last one, with cereal and staple food prices rising worldwide within one year.

The estimated number of hungry in the world is now 868 million (2012 FAO Hunger Report). In all likelihood, that number will rise above 900 billion, perhaps above 950 billion for 2013 to 2015 (a two-year period, just as with the previous food crisis). Afterward, higher prices should cause more agricultural land to be put into production, and prices should fall somewhat. However, a quick recovery is unlikely.

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