World food prices are set to double by 2030 according to an Oxfam report to be released tomorrow. This is not alarmist; it might even turn out to be a conservative estimate.
If one looks at figures released last week by the Food and Agriculture Organization of the United Nations, one can see that the FAO food price index has jumped from 90 in 2000 to 232 in April 2011. That’s just the headline index based on a basket of five food commodities. When you drill down a bit further into their data, the FAO are pointing up a year-on-year increase of 71% in grain prices since April 2010.
And just so you know, “roughly one third of the food produced in the world for human consumption every year — approximately 1.3 billion tonnes — gets lost or wasted,” according to another FAO-commissioned study released in May 2011. So, no prizes for guessing which hemisphere is the wasteful one and which is suffering greatest from shortage....
Oxfam’s prognosis of the world “entering an era of permanent food crisis, which is likely to be accompanied by political unrest and will require radical reform of the international food system” is probably optimistic.
Banks polish turds
There are few indicators that point to a rosy picture although there is plenty of turd-polishing disingenuousness from the likes of the IMF and investment banks such as Morgan Stanley.
Most other commodity prices are also set to continue rising on most analysts’ betting slips. The Centre for Global Energy Studies (CGES) maintains that “oil prices are expected to stay high in 2011, despite the expected slowdown in global oil demand growth from the levels seen in 2010.”
CGES lays much of the blame for this at the door of OPEC members who showed “a marked reluctance to take a clear and transparent decision to replace the oil supplies lost from Libya and a lack of any sense of urgency to act to bring oil prices down.”
As a result, the CGES expects “annual average oil prices in 2011 to exceed $100/bbl for both Dated Brent and the OPEC basket, well above the previous highs of around $95/bbl recorded in 2008.”
China continues to drive commodity demand and this is reflected by recent PRC figures for industrial output growth. Inflation however remains a stubborn problem on both consumer and producer indices. But China's footprint in the commodities market is only one of the levers at the dragon economy's disposal. More of its impact on the credit markets anon.
There are early signs that a slowdown may be coming for at least some of the Emerging giants. Figures from India suggest that the country’s growth was it at its slowest for the five quarters up to March 2011. Rising interest rates are thought to have put the brakes on consumption and investment and the GDP disappointed expectations with a mere 7.8% increase. It's only a slowdown but if the decline is buoyed up by a credit bubble then there could be trouble ahead.
And another bubble begins...
In monetary terms, there remains among the global banking and financial elites, a sense of happily galloping towards the abyss of another toxic credit bubble; another bill to be footed by the still unsuspecting taxpayers of a country that could just as easily be European as Emerging Market.
Here in Europe the problem just won’t go away. Last week, former Bank of England Monetary Policy Committee member David "Danny" Blanchflower the Daily Telegraph that “a failure by the ECB to tackle the debt problems in the Euro zone means a default is inevitable and that the crisis could be heading through Spain to France.” So it’s not if, it’s when...
Investment bank Morgan Stanley’s Global Economic Forum was busy painting the global credit situation in rosy terms. What credit Bubble? they wondered... “The Emerging Market world under our coverage shows credit growth broadly in line with the economic recovery and suggests no immediate reason for concern.
Manoj Pradhan and Alan Taylor did have the decency to point out that “the risk to this benign scenario emanates from near-zero real policy rates in the Emerging Market (and Developed Market) world designed to keep growth from falling sharply, a policy that could fuel further credit growth at a pace that outstrips fundamentals and might require more aggressive tightening later.”
They also implicitly acknowledge that in all of this, our friends in Beijing are much more in control of their economic destiny than most, if not all of the developed market countries. “As for China, credit is actively used as an important (perhaps the most important) tool of monetary policy; it is more of an instrument, and less of a signal about fundamentals.”
Buried somewhere in the article there is the obligatory caveat to governments: “policy-makers ignore credit booms at their peril”. In other words, when the shit comes down and greedy politicians have been getting behind the curve of a credit boom to bust rather than taking courageous curbing measures, Morgan Stanley can say, ‘we told you so. To this is added another piece of faux-piety from the bank: "One hopes that the lessons from history will guide Emerging Market policy-makers to resist the temptations of excess."
If you do fancy blowing some credit bubbles, Morgan Stanley tips China, India, Brazil, Russia, Turkey, Indonesia as the likeliest high risk recipients of the global financial system’s next Emerging Markets toxic shock.
Africa bears the burden yet again
But as food prices continue to spiral, spare a thought for Africa. Commodity rich yet paradoxically cash poor, the old (thinly-disguised racist) lies about endemic corruption being largely to blame for the continent's woes are frankly not plausible anymore. When one sees the amount of irreplaceable wealth literally stolen from the continent by transnational companies whose interference is often a direct threat to sovereignty, it’s easier to see where the corruption lies. After all, it’s not like the IMF can really hold itself up as paragon of moral probity. (New York, New York it’s a helluva town....)
Here’s the IMF’s upbeat take on Africa, last month.” Sub-Saharan Africa’s recovery from the crisis-induced slowdown is well under way, with growth in most countries now back fairly close to the high levels of the mid-2000s. Growth this year is expected to average 5½%, and 6% in 2012.”
And here’s the ‘but’: “there is, however, some variation among country groupings. In most of the region’s 29 low-income countries and 7 oil exporters, the recovery to pre-crisis growth rates is near complete. The picture is less favorable in the region’s middle-income countries, a grouping dominated by South Africa. Here, growth is recovering more gradually.”
Even the IMF is forced to acknowledge that “the region’s progress toward the poverty reduction Millennium Development Goals (MDGs) has been delayed by weaker employment incomes (including job losses of 1 million in South Africa) and the impact of the 2008 spike in food and fuel prices. But if you were of a wagering disposition, Uganda's growth might still be worth a punt as the East African front-runner, at least according to the bean-counters and tipsters. In the west, the safe-bet economy to exploit (excuse me, invest in) would still probably be Ghana.
But of course even the IMF can’t ignore the burgeoning world food crisis: “With the advent of another sharp increase in food and fuel prices, the resilience exhibited by the region during the last few years is about to be tested again. These price shocks (coupled with the recovery) are likely to lead to higher inflation in most countries”...If you’re not reading petrol bombs and Kalashnikovs between the lines there, then you’re a more trusting soul than I.
The IMF system that seems currently to be in operation demands that African economies tighten their belts and continue to make crippling payments on deficits that will never go away. Consequently, these countries are too weak to charge a fair price for their precious natural resources, which have usually already been expropriated by western-backed Multi-National companies in any event. Free markets...you gotta love ‘em.
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