The globe’s worst food crisis in a generation emerged as a blip on the big boards and computer screens of America’s great grain exchanges. At first, it seemed like little more than a bout of bad weather.
In Chicago, Minneapolis and Kansas City, traders watched early last summer as wheat prices spiked amid mediocre harvests in the United States and Europe and signs of prolonged drought in Australia.
But within a few weeks, the traders discerned a snowball effect — one that would eventually bring down a prime minister in Haiti, make more children in Mauritania go to bed hungry, even cause American executives at Sam’s Club to restrict sales of large bags of rice.
As prices rose, major grain producers including Argentina and Ukraine, battling inflation caused in part by soaring oil bills, were moving to bar exports on a range of crops to control costs at home. It meant less supply on world markets even as demand entered a new phase. Already, corn prices had been climbing for months on the back of government-subsidized ethanol programs.
Soybeans were facing pressure from surging demand in China. But as supplies in the pipelines of global trade shrank, prices for corn, soybeans, wheat, oats, rice and other grains began shooting through the roof.
At the same time, food was becoming the new gold. Investors fleeing Wall Street’s mortgage-related strife plowed hundreds of millions of dollars into grain futures, driving prices up even more. By Christmas, a global panic was building. With fewer places to turn, and tempted by the weaker dollar, nations staged a run on the American wheat harvest.
Foreign buyers began to stockpile. They put in orders on U.S. grain exchanges two to three times larger than normal as food riots began to erupt worldwide. This led major domestic U.S. mills to jump into the fray with their own massive orders, fearing that there would soon be no wheat left.
“Japan, the Philippines, (South) Korea, Taiwan — they all came in with huge orders, and no matter how high prices go, they keep on buying,” said Jeff Voge, chairman of the Kansas City Board of Trade and also an independent trader.
Grains have surged so high, he said, that some traders are walking off the floor for weeks at a time, unable to handle the stress.
“We have never seen anything like this before,” Voge said.
The food-price shock now roiling world markets is destabilizing governments, igniting street riots and threatening to send a new wave of hunger rippling through the world’s poorest nations. It is outpacing even the Soviet grain emergency of 1972-75, when world food prices rose 78 percent. By comparison, from the beginning of 2005 to early 2008, prices leapt nearly 90 percent, according to the United Nations’ Food and Agriculture Organization.
The convergence of events has thrown world food supply and demand out of whack and snowballed into civil turmoil.
After hungry mobs and violent riots beset Port-au-Prince, Haitian Prime Minister Jacques-Edouard Alexis was forced to step down this month.
At least 14 countries have been racked by food-related violence. In Malaysia, Prime Minister Abdullah Ahmad Badawi is struggling for political survival after a March rebuke from voters furious over food prices. In Bangladesh, more than 20,000 factory workers protesting food prices rampaged through the streets two weeks ago, injuring at least 50 people.
The U.N. World Food Program fears that the crisis will plunge more than 100 million of the world’s poorest people deeper into poverty, forced to spend more and more of their income on skyrocketing food bills.
Few think prices will go back to where they were in early 2006, suggesting that the world must cope with a new reality of more expensive food.
People are coping in different ways. For the 1 billion living on less than a dollar a day, it is a matter of survival.
In a mud hut on the Sahara’s edge, Manthita Sou, 43, a widow in the Mauritanian desert village of Maghleg, is confronting wheat prices that are up 67 percent on local markets in the past year. Her solution: stop eating bread. Instead, she has downgraded to cheaper foods, such as sorghum. But sorghum has jumped 20 percent in the past 12 months.
Living on the 50 cents a day she earns weaving textiles to support a family of three, her answer has been to cut out breakfast, drink tea for lunch and ration a small serving of soupy sorghum meal for dinners.
“I don’t know how long we can survive like this,” she said.
Even wealthy nations are being forced to adjust. In the United States, experts say consumers are scaling down on quality and scaling up on quantity if it means a better unit price.
The root cause of price surges varies from crop to crop. But the crisis is being driven in part by an unprecedented linkage of the food chain.
A big reason for higher wheat prices, for instance, is the multiyear drought in Australia, something that scientists say might become persistent because of global warming. But wheat prices are rising because U.S. farmers have been planting less of it, or moving wheat to less fertile ground.
That is partly because they are planting more corn to capitalize on the biofuel frenzy. This year, at least a fifth and perhaps a quarter of the U.S. corn crop will be funneled to ethanol plants.
“If you didn’t have ethanol, you would not have the prices we have today,” said Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University. “It doesn’t mean it’s the sole driver. Prices would be higher than we saw earlier in this decade because world grain supplies are tighter now than earlier in the decade. But we’ve introduced a new demand into the market.”
