Drought last year devastated much of the maize crop in the US, the world’s biggest maize exporter, driving prices of the staple cereal to record levels.
While food experts did not anticipate the rising prices would trigger the kind of crises seen in 2008 and 2011 – when the world faced structural deficits in the more widely consumed staples wheat and rice – they are concerned about theability of the world’s poorest people to feed themselves.
Cereal prices have declined by a modest 2.4 percent, largely the result of lower demand as economies stagnate, the Food and Agriculture Organization (FAO) reported last week. But we are already in an era of high prices. The price ofwheat was more than 20 percent higher in October 2012 compared to the same period in 2011, according to FAO.
IRIN – with the help of food experts, the most recent reports from FAO and the US Department of Agriculture (USDA) – reflects on the global food situation in 2012 and the outlook for 2013.
Will 2013 be a crisis year?
Thus far in 2013, drought has persisted in almost 19 percent of the US. Poor rains over the autumn/winter period in big farming states like Kansas and Oklahoma are affecting wheat, which is a winter crop. Even so, some experts say it is too early to forecast how this will affect global food security.
Abdolreza Abbassian, secretary of the Intergovernmental Group on Grains at FAO, said he does not expect the US drought to have a huge impact on global supplies of wheat yet, “but should we record another climatic shock in Russia, then we could be in trouble.” He said a clearer picture will emerge in February during the Northern Hemisphere spring, when details of how much grain each of the major producers will be selling becomes available.
But other experts see things differently. Steve Wiggins, development and agriculture expert at the Overseas Development Institute (ODI), a UK-based think tank, told IRIN in an email, “Do we not have a food price crisis? Prices are high. Prices of maize and wheat leapt up in mid-2012 when it was clear just how bad the US maize harvest might be, adding US$50 a ton or more to the prices… Prices are 50 percent or more higher than they used to be.”
Even so, he said, “we expect farmers to be planting large areas and piling on fertilizer and other inputs to get big harvests… If there are no major harvest failures, then by this time next year, maize and wheat prices may have fallen back by US$50 a ton or more; perhaps even rice prices may fall somewhat… But if we do have problems, and especially for maize, there’s not much slack in the system.”
The USDA has pointed out that heavy rains in Argentina and Russia have affected wheat crops, and production estimates have been revised downwards.
And maize stocks remain low. “Any new failure of a maize harvest could see prices doubling quickly. It may take another couple of years of regular harvests before those stocks rise to levels that give sufficient insurance against occasional shocks,” Wiggins said.
He reckoned the impact of 2007-2008 food price shock has not “fully unwound. I expect prices to fall back somewhat over the next two or three years, for the simple reason that the many farmers in the world who have any spare capacity have to be motivated by current price levels to go for bumper harvests. It’s not that hard to raise production by another 5 percent to 10 percent if the price is attractive enough. Right now, maize and wheat prices look very rewarding. ”
Was there a crisis in 2012?
The experts agree that a global food price shock was averted in 2012. Lower demands for grains helped push down global prices, preventing them from spiralling out of control.
The world avoided a repeat of the crises of 2008 and 2011 because the ratio of grain stocks against demand was not as high as in those earlier years, Christopher Barrett, a professor of applied economics at Cornell University in the US, told IRIN via email. Existing stocks of cereals across the world were able to absorb the US drought-induced shock and other disruptions, he added.
“But also maize – the grain that led the price rise of 2012 – is quite different from rice and wheat – which led the 2008 and 2011 spikes, respectively,” he said, explaining that a great deal of maize is used industrially, such as for livestock feed, ethanol and corn syrup, and companies are better equipped to find substitutes than consumers.
Barrett added that major maize-trading countries’ governments “are less likely to enact policies like the rice exports bans of 2007-2008 or the wheat export bans of 2010-2011, or the Philippines’ procurement contract of 2008,” moves that exacerbated those earlier crises.
ODI’s Wiggins reasoned that “things didn’t get worse in 2012 because, fortunately, the US maize crop failure was pretty much the only major shock of the year, while farmers the world over have been planning for bumper harvests, so production has been quite high, even allowing for the US maize harvest”.
Cheaper maize offered by competitors – mostly from the Ukraine – has made its way to traditional US markets like South Korea and Japan, pointed out USDA.
“High food prices may no longer have the shock impact that they had back in 2008. Adjustments have taken place,” said Wiggins. “In some fast-growing countries, wages are higher than they were, for example. Other adjustments may have taken place,” he said, citing as examples “people switching to lower-cost staples, wasting less food, [and] finding ways to adjust household budgets so that staple food consumption holds up”.
“Yet in other cases,” he continued, “one fears that hardship is being borne in silence. Price shocks are no longer that newsworthy, and we collectively slump towards the sense of ‘that’s just the way things are’.”