Hungry for a Solution to Rising Food Prices

Even if the global agriculture crisis doesn't turn cataclysmic, it represents a massive test

Photograph by Bartholomew Cooke for Bloomberg Businessweek

By Eric Pooley and Philip Revzin

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As the Tunisian dictator Zine el Abidine Ben Ali discovered in January, there is no surer route to political oblivion than to deny people access to affordable food. On Dec. 17, after Tunisian police assaulted a street vendor named Mohamed Bouazizi and seized his produce cart because, according to his family, he couldn't afford to pay bribes, the 26-year-old Bouazizi doused himself with accelerant and lit a match. He died two weeks later. The riots that ensued—propelled in part by anger over high food prices—drove Ben Ali from power and spread to Egypt, Jordan, Yemen, and Algeria. Ben Ali may be remembered as the despot who was toppled by a vegetable cart.

The hunger that has roiled the Middle East was not caused by the whims of autocrats and cops. It began last year with crippling drought in Russia and later Argentina, and torrential rains in Australia and Canada. The deluges in Saskatchewan were so sustained and intense that farmers couldn't plant some 10 million acres of wheat, according to the Canadian Wheat Board. "What is typically the driest province was never wetter," said the governmental agency Environment Canada. Shrunken wheat harvests in those countries, along with cool, wet summer weather in the American Midwest that delayed the U.S. harvest, helped drive wheat prices at the Chicago Board of Trade up by 74 percent in the past year. Corn traded in Chicago rose by 87 percent during the same period. More recently, grain prices have spiked even higher because of yet another drought, this one threatening China's wheat crop, the world's largest. In that country's eight major wheat-producing provinces, some 42 percent of winter wheat cropland has been hurt by a dry spell, according to Agriculture Minister Han Changfu.

Overall, the U.N. Food and Agriculture Organization in Rome says global food prices surged in January to record levels, based on data reaching back to 1990. "Whenever you get the market as tight as we are now, hoarding becomes widespread," says Abdolreza Abbassian, a senior economist at the FAO. Wheat prices may keep rising until the summer, he predicts, because importers are speeding up purchases to outrun inflation. Prices are more likely to stay high or go higher in the next six months, he adds, than to decline.

Whether the world tips into agricultural catastrophe this year depends on the fate of the wheat on the North China Plain. "You need two perfect harvests through the summer of 2012 to get stockpiles back to an acceptable level," says Jason Lejonvarn, a commodities strategist at Hermes Fund Managers in London. Unless sufficient moisture reaches the parched seedlings, a net exporter of wheat could become a net importer of wheat, further stressing world markets. Short of that, a Chinese ban on wheat exports would also send prices higher, meaning that global grain shortages—once thought to be a disaster of the past—could return. Even American commodities buyers are feeling the pinch. "There is not one crop you can point to that is without supply problems," says Steve Nicholson, a commodity procurement specialist for International Food Products in St. Louis. "Production is not keeping up with demand."

Even if the worst does not come to pass, this sudden fracture in the global food supply represents a massive test—or, more accurately, a series of them.

At the most basic level, the crisis is a test of mankind's ability to feed itself. Industrial agricultural techniques have boosted crop yields and kept food prices low for decades, but the era of predictable abundance that fueled the world's population growth to almost 7 billion people may be over. Relief agencies, already lashed by hurricanes, earthquakes, volcanic eruptions, and government budget cuts, are ill-equipped to handle severe food shortages. Yet rising global food prices have pushed 44 million more people into extreme poverty in developing countries since June, the World Bank says. "Global food prices threaten tens of millions of poor people around the world," World Bank President Robert Zoellick said in a Feb. 15 conference call. "The price hike is already pushing millions of people into poverty and putting stress on the most vulnerable, who spend more than half of their income on food."