It’s more than coincidence the Arab world is convulsing with social unrest just as the United Nations Food and Agriculture Organization’s widely watched price index recently soared past the previous food price peak set in the summer of 2008. After all, didn’t those same prices ignite food riots throughout the world only three summers ago?
Then 40% of your population lives on less than $2 per day, soaring food prices isn’t about cutting back on luxury spending. This is particularly telling when record prices include basic grains such as wheat, of which Egypt is the world’s largest importer.
Suddenly, it becomes a lot more difficult for the roughly 30 million Egyptians living on that $2 per day to stomach their three decade dictator, Hosni Mubarak. Similar popular indigestion, triggered initially around food prices, sent equally beloved Tunisian strongman, Zine El Abidine Ben Ali, packing all the way to exile in Saudi Arabia.
And when food riots recently broke out in neighboring Algeria, not only did three-term president Abdelaziz Bouteflika suddenly see fit to lift a 19-year stage of emergency but, more important, he told his government to order a record 800,000 tonnes of wheat.
Algeria is not the only country in the region to start bulking up on its food inventories as a hedge against future food protests that could easily morph into popular revolutions. Everyone in the region is doing it, including supposedly stable Saudi Arabia, which recently announced plans to double its wheat inventories.
And it is not just Arab nations feeling the pinch. Food riots are sweeping across the developing world, encouraging similar hoarding elsewhere. Bangladesh and Indonesia placed record rice orders; the former doubling its order, while Jakarta quadrupled its rice purchases.
And China may soon be joining the fray. Severe drought in the north is having a disastrous impact on the country’s winter wheat harvest. This has left the ground extremely dry for spring planting. If China, normally self–sufficient in wheat, becomes a significant importer this year, world grain prices could go a lot higher.
If soaring food prices are the real culprit behind growing civil unrest sweeping through the developing world, governments reaction to the crisis is only bound to make the problem worse. You don’t need a PhD in economics to figure out what happens to prices when every government under the sun starts stockpiling food.
What’s most disconcerting about today’s food prices (as it is with oil prices) is not so much their record level but how little time it has taken for basic resource prices to rebound from the post-war’s deepest global recession. At the very beginning of a new cycle, we are already seeing the same record food and energy prices that ended the last cycle.
I wonder what that says about the sustainability of growth?