NECSI Food Briefing


Cites as:

K.Z. Bertrand, G. Lindsay, Y. Bar-Yam, Food briefing Aug 24, 2012, NECSI Report 2012-08-02 (8/24/2012).


August 15, 2012 - The severe drought in the American Midwest, combined with misguided biofuel policy, threatens to trigger a global catastrophe. The worst U.S. drought since 1956, this summer's high temperatures and lack of rainfall in the breadbasket means this year's corn harvest will be the worst since 1995, the U.S. Department of Agriculture announced on Friday, along with the worst soybean harvest since 2003 [1]. Corn prices have risen 65% since June, while wheat prices have risen 50% from their low this spring [2].

One result is that many hog farmers and cattle ranchers have begun slaughtering their herds early to avoid the skyrocketing costs of grain feed [3,4]. This, in turn, has depressed meat prices, leading President Obama to announce Monday that the Department of Agriculture intends to buy more than $150 million of pork, lamb, chicken and catfish to put a floor under prices [5]. In his weekly radio address, the President — who is currently touring drought-stricken Iowa — described this as "an all-hands-on-deck response" [6], but he did not mention the government policy that could be changed: ethanol production.

U.S. energy legislation requires that 4.9 billion bushels of corn [7]— 46% of a projected harvest of 10.8 billion bushels [1]— be used to produce ethanol for fuel. This mandate — which satisfies only 1% of American energy consumption [8]— diverts corn from food and feed production, driving up prices faster and further than they might have otherwise.

They also indirectly inflate the prices of substitutes, primarily wheat but also rice. There are signs this is happening: The Wall Street Journal reported Monday that rice prices are expected to rise 10% over the next three months because of tightening supplies [9].

While the higher costs of grains will be felt by Americans (the U.S. Department of Agriculture projects a 3-4% rise in food prices next year [10]), the situation is direr for the developing world, particularly in Africa and parts of South America. The United States remains the largest grain exporter in the world [11], and when U.S. supply goes down, everyone's prices go up. Those living in the “bottom billion” [12] on less than a dollar per day already spend most of this income on staples [13], such as corn and rice to survive. When prices soar, they starve. The United Nations estimates 925 million people suffered from chronic hunger at the end of 2010 [14], a period of relatively low prices. That number will surely rise.

In times of food crises, starving people take to the streets. Hunger leads to desperation, and desperation to violence. NECSI has shown that surges in unrest coincide with food price peaks in 2007-01 and 2010-11 [15]. Violence, social unrest, political upheaval, and human suffering are inevitable if we do not take steps to control prices.

This power is within the U.S. Government's grasp. The Environmental Protection Agency possesses the ability to curtail or even suspend the conversion of corn to ethanol [16], which it so far has declined to use. Last week, 25 U.S. Senators sent a letter to EPA Administrator Lisa Jackson urging her to exercise her waiver authority [17], following a letter from 156 Congressmen on Aug. 1 [18]. Last Thursday, José Graziano da Silva, the head of the United Nations Food and Agricultural Organization (FAO), joined them in calling for an “immediate, temporary suspension” of the mandate, which could help head off a food crisis [19].

U.S. Secretary of Agriculture Tom Vilsack has said he "gets down on [his] knees every day" and prays for rain. "If I had [...] a rain dance I could do, I would do it,” Vilsack said [20]. Even if it comes, rain is no longer a solution. A better one would be to suspend the ethanol mandate, which should immediately drive down the prices of staple foods. The corn used for ethanol is the same used for animal feed as well as for many processed foods [21], and can provide food for many people. We cannot avert the drought, but we can eliminate the mandates, and diminish the food crisis.

1. National Agricultural Statistics Service, Crop production. USDA press release (8/10/2012). http://usda01.library.cornell.edu/usda/current/CropProd/CropProd-08-10-2012.pdf

2. Calculated from: Daily commodity futures price chart: Sept. 2012, Corn (Globex). http://futures.tradingcharts.com/chart/ZC/92?anticache=1345047224; Sept. 2012, Wheat (Kansas). http://futures.tradingcharts.com/chart/KE/

3. A. Bjerga, Ranchers send cows to slaughter as drought sears pasture. Bloomberg (8/10/12). http://www.bloomberg.com/news/2012-08-10/ranchers-send-cows-to-slaughter-as-u-s-drought-sears-pasture.html

4. T. Waters, US slaughter of sows soars to 8-month high amid drought. Reuters Africa (8/9/12). http://af.reuters.com/article/commoditiesNews/idAFL2E8J9J9020120809?pageNumber=1&virtualBrandChannel=0

5. C. Doering, U.S. to buy $170M in meat, fish to help farms hit by drought. USA Today (8/13/12). http://www.usatoday.com/money/economy/story/2012-08-13/drought-obama/57039784/1

6. The White House Office of the Press Secretary, Weekly address: All-hands-on-deck response to the drought (8/11/2012). http://www.whitehouse.gov/the-press-office/2012/08/11/weekly-address-all-hands-deck-response-drought

7. Natural Pork Producers Council. Lawmakers ask EPA for waiver of corn-ethanol mandate (8/2/2012). http://www.nppc.org/2012/08/lawmakers-ask-epa-for-waiver-of-corn-ethanol-mandate/

8. Calculated from:
US Energy Information Administration, Annual energy review table 10.3: Fuel ethanol overview, 1981-2010 (10/19/11). http://www.eia.gov/totalenergy/data/annual/showtext.cfm?t=ptb1003
and:
US Energy Information Administration, Energy overview: Total energy flow, 2010 (2010). http://www.eia.gov/totalenergy/data/annual/diagram1.cfm)

9. S. Mohindru, Surging rice prices compound Asia food inflation. Wall Street Journal (8/13/12). http://online.wsj.com/article/SB10000872396390444184704577586850444119264.html

10. USDA Economic Research Service, Consumer Price Index: Changes in food price indexes, 2010 through 2013 (7/25/12). http://www.ers.usda.gov/data-products/food-price-outlook.aspx

11. United States Department of Agriculture, Foreign Agricultural Service, Production Supply Distribution Online (accessed 8/16/2012, 2011 data). http://www.fas.usda.gov/psdonline/psdQuery.aspx

12. P. Collier, The bottom billion: Why the poorest countries are failing and what can be done about it (New York: Oxford University Press, 2007).

13. A. V. Banerjee, E. Duflo, The economic lives of the poor. Journal of Economic Perspectives 21, 141–167 (2007). http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2638067/

14. Food and Agriculture Organization of the United Nations, 925 million in chronic hunger worldwide (9/14/2010). http://www.fao.org/news/story/en/item/45210/icode/

15. M. Lagi, K.Z. Bertrand, Y. Bar-Yam, The food crises and political instability in North Africa and the Middle East. arXiv:1108.2455 (8/10/11). http://arxiv.org/abs/1108.2455

16. Clean Air Act, Section 211(o)(7). http://www.law.cornell.edu/uscode/text/42/7545

17. P. Toomey, Sen. Toomey asks EPA to ease ethanol mandate in response to U.S. drought (8/3/12). http://www.toomey.senate.gov/?p=press_release&id=676

18. B. Goodlatte, Bipartisan coalition of members urge EPA to act now to reduce the RFS mandate (8/2/12). http://goodlatte.house.gov/press_releases/327

19. C. Abbott, Drought crop damage worsens, ethanol waiver urged. Reuters (8/10/12). http://www.reuters.com/article/2012/08/10/us-drought-idUSBRE8781E320120810

20. P. Baker, Drought puts food at risk, U.S. warns. New York Times (7/18/12). http://www.nytimes.com/2012/07/19/us/drought-puts-food-at-risk-us-warns.html?_r=1&pagewanted=all

21. National Corn Growers Association, Fast facts: A tale of two corns (1/2012). http://www.ncga.com/uploads/useruploads/tale_of_two_corns_2012.pdf


Food prices (blue) and food price model (red) including projected increases in coming months. The social unrest threshold, corrected for inflation (purple dashed line) is a level of food prices that is likely to cause food riots of impoverished populations and social disruption. Parameters as in July update, modified to include larger recent reported FAO food price index increase of 6%.

Food prices (black line) and food riots and the Arab Spring (red lines). See food riots paper.

 

 

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