Food: What’s Really Behind the Unrest in Egypt

Posted by Jeff Rubin on February 9th, 2011 under SmallerWorldTags: , , ,  • 31 Comments

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?

  • Shirley

    It says we’ve reached the end of economic growth as we know it, because key resources — oil and food — have become a zero-sum game. Up until now, we’ve been able to turn to spigot to produce more of what we’re used to consuming. No more: once economic activity passes a certain point, the globe begins consuming more than is sustainable. Of course, we’ve been consuming more than is sustainable for quite a while … it’s just that the impacts now are being felt nearly immediately rather than in the long term.

  • Remi

    If you are living on $2/day, a 30% hike in food pries means a 30% reduction in food consumption… No wonder there are riots…

  • Rojelio

    Growth of the food supply, growth in energy consumption, growth in resource extraction is essentially done. Growth of debt is becoming the main attraction.The real mystery to me is why the overwhelming majority of people (I’m in the USA) completely disagree with this axiom.

    What would be so wrong with some exponential growth in conservation & efficiency and moving out of the suburbs and walking once in a while etc… etc…?

  • Abitibidoug

    Recently I heard Gwynne Dyer, a guy who really knows a lot about the Middle East, speaking. He said what you have going on in Egypt and Algeria is comparable to what happened in the former Soviet Union and Eastern Europe in 1989, and will ultimately lead to a more demogratic government. The trouble was brewing for some time, and needed something to trigger it, namely high food prices. He is probably right, but when those, or other Middle East countries, get new governments will the problem be solved? Probably not, unless people in those countries get far more wealthy than they are now, if the underlying problem is low income and high food prices.

    Meanwhile, most of us in the wealthier countries expect growth and consumption to continue on going forward. As Shirley and Rojelio have pointed out, that’s a thing of the past and not likely to continue. Meanwhile most economists (with the exception of a few like Jeff Rubin) and politicians don’t understand this idea and assume business as usual. It’s like the ship is going down, but few people notice as they are too busy organizing the deck chairs. As long as denial of the problem continues, the problem of the yo yo economy of recovery, inflation, recession, and recovery will continue and with more extremes each time around. So my assignment (and your’s too) should be to figure out what kinds of investments will be a good defence against these price shocks. If and when the next recession hits, I will be loading up on energy and resource stocks, or funds that invest in them. Any other ideas of what to invest in?

  • eugene

    Remi: Something like 1/3 of the world’s population lives on less than $4 a day.

    I live in northern Minnesota where the average family income is about $35,000 a yr. Sounds like a ton of money in comparison but figure in US numbers and I don’t know how they make it. Every trip to the store, I see higher prices. People have to be cutting corners somewhere and having grown up poor, I know where. While we whine and cry about people losing their homes, untold millions are already in water to their necks, living in the streets, going to bed hungry, self treating illnesses, no visits to the dentist and the list goes on. The toiling masses on the edge of disaster every minute of every day.

  • eugene

    Remi: Something like 1/3 of the world’s population lives on less than $4 a day.

    I live in northern Minnesota where the average family income is about $35,000 a yr. Sounds like a ton of money in comparison but figure in US numbers and I don’t know how they make it. Every trip to the store, I see higher prices. People have to be cutting corners somewhere and having grown up poor, I know where. While we whine and cry about people losing their homes, untold millions are already in water to their necks, living in the streets, going to bed hungry, self treating illnesses, no visits to the dentist and the list goes on. The toiling masses on the edge of disaster every minute of every day.

  • Kirktimpdx

    I read somewhere that China produces twice as much wheat as the US. Apparently if they do not receive substantial rain by the end of Feb (and that does not look likely), they will stare importing. They have the cash to literally starve most of the rest of the developing world. While this might be inadvertent, it seems to me like a train wreck is very possible.

  • George I.

    Less food is available because of global warming.

  • Bubba 44

    Every one knows the answer – bring the “developing” wold to the “developed” world standard of living. The uinknown is how to achieve that goal.The answer is NOT in the lowering of the standard for some. Mother Russia has been struggling with the result of her own development for 20+ years now. I do not think many of the under fed can last that long.

  • Dhouston

    Did anyone catch Donald Trump on CNN last night? He’s under the belief that OPEC is still the big factor in determining the price of oil. Further all it takes to stabilize the price is to get the USA to tell them not to keep raising the price of oil …….or else

  • God

    Right now you see: Inflation for the stuff you need, and deflation for the stuff you don’t need.

    Soon you will see hyperinflation for all stuff because people will simply want to get rid of all the money they own, because it will be worth nothing in the end.

  • Peterd

    Unlimited growth is not sustainalbe in a finite world.
    Clearly, as populations around the world grow and consume more resources, we as a planet will rapidly exceed the carrying capacity of the planet.
    To expect sustainable growth and expansion is shear madness at bestg.

  • Bill

    Perhaps some remember the Club of Rome’s then ground breaking book “Limits to Growth” which used computer simulations to predict an end to growth. Perhaps some remember Malthuse who saw agricultural production increasing linearly and population increasing exponentially. Perhaps they are finally right. Perhaps technology has reached its limits to growth. All it seem capable of producing is another cell phone that we do not need rather than another energy and food source we desperately need. .

    I have no idea how this is going to play out. I think it is likely that those living on the edge will fall off the abyss. During times of shortage it is the poor who suffer while the rich just complain and those that can afford to sit at a computer with an internet hookup are rich by global standards.

    What is happening is not that we are running out of oil and food. It is that we are running out of cheap oil and food. The challenge for the poor will be to survive. The challenge for the developed world will be a moral one. Will we reduce our standard of living in order to allow other to survive or wait for a year or two and reduce the suplus population? I’m for reducing our standard of living.

  • George I.

    The developed world will lower its standard of living to look after itself. Situation normal. Global warming will look after the surplus population.

  • George I.

    I think you will be wrong in the medium to long term. The genius of humanity has been and will continue to be adaptation and innovation. The same applys to Bill’s comment.

  • Bill

    Shirley could you clarify what you mean by “have become aa zero sum game” as it applies to oil? A zero sum game usually means that for everyone winner there is a loser. In the case of oil, if we find better ways of recovering reserves who is the loser? Perhaps the environment, but this nothing new, it has always been the case.

  • Bill

    For most of the history and prehistory, humanity has lived a hand to mouth existence. This is still true today. The genius of humanity has only been evident in the last few hundred years and only applies to a lucky few who live in abandance. Perhaps the adaptions and innovations you are refering to are just disquised ways of increasing the exploitation of the natural human world.

  • George I.

    Those you refer to who live in abundance are part of the capitalist system and this may be the answer to prosperity everywhere. It will remove “exploitation of the natural human world”.

  • George I.

    The environment seems to me to be in great shape overall with minor blips here and there. This is the case in North America, at least.

  • Kirktimpdx

    Are you serious?!

  • Peterd

    I’m with you on this Shirley…We are rapidly reaching hte carrying capacity of the planet (the point where the earth can no longer sustain continued growth and provide clear air, water, energy and food to the growing population.
    And George, no offense meant here, but the so called ” genius of humanity” continues in it’s unabated orgy of comsumption with little of no regard for the global human consequences. Ledt’s be honest, most of the time humans can not control the functioning of their bodily sytems such as their own bowels let alone the complex interconnected relationships of the planet, climate, food growth biology, waater usage and dispertion.
    Our “genius of humanity” continues to focus on creating human longevity to extend life, while at the same time turn our back on disease and famine in far off areas of out planet, or worse yet continue to sponsor religions that forbid birth control when the growing population is running out of control at a time when food generation and water purifcation and delivery are limited.
    I am afriad the so-called “genius of humanity” is conmpromised by the growing “madness on mankind.”
    Have a great weekend.

  • George I.

    Absolutely. The air quality in the city where I live has improved exponentially in the last 35 years despite a trebbling of automobile use. The life expectancy has gone up 3 or 4 years. How can you argue against that?

  • Kirktimpdx

    Follow-up to my post 4 days ago:

    Bloomberg: “Snowfalls in China’s major wheat- growing regions failed to ease a drought, a government agency said. Wheat prices climbed to the highest level since August 2008 in Chicago and to a record in Zhengzhou.

    The dry spell is likely to continue to affect crops as the weather is getting warmer and the winter wheat needs large amounts of water when turning green, Chen Lei, deputy director at the State Flood Control and Drought Relief Headquarters, said in a statement posted on its website on Feb. 12.”

    ….. not good news.

  • Chris

    Lets not forget that during up swings in commodity price cycles, that the peak in the cycle usually culminates in a major war, at least it has in the past. I have been thinking that for a while that these price rises have the ability to enter a feed back loop where, higher prices lead to civil unrest, uprisings and more geo-political tensions, and those geo-political tensions then lead to higher oil prices, and then to more up risings and tensions. This situation will allow the possibility of extremist groups in to become “democratically elected”. Remember, Hilter was elected.

  • Alain

    you are a serious moron, the only thing the american PIGS should do if they want to survive, is to put a $2 tax a gallon at least (make part of it directly redistributed as proposed by James Hansen if needed). But these stupid Amrican airheads are way too committed towards total economic suicide to do any of this. Collapse is coming soon, that disgusting PIG FARM will go bye bye, and soon

  • Rojelio

    Less food is available because of 7 billion greedy, ruthless, defecating rats with intelligence running amock all over the petri dish.

  • Shirley

    I believe the description of a zero sum game applies here, not because we’re running out of oil but, as Jeff Rubin has pointed out many times, because we’re running out of the cheap- and easy-to-extract oil. That drives up prices to the point where those with ample supplies of cash can still afford it (ie, the “winners”), but those without do without (ie, the “losers”). Look to the US healthcare system for an analogy: we have some of the most advanced and life-saving medical procedures and some of the top medical facilities in the world … but you can only avail yourself of them if you’ve got platinum medical insurance and/or wealth to spare.

  • George I.

    You’re a glass half empty kind of guy. US will rule…for a very long time.

  • George I.

    There is a heck of a lot more resources out there than you give credit. Main problem is access followed by relative location. We have just our toe into the business at this time.

  • George I.

    Just got back from Shanghai. When the penecillin drops, it may be on your side of the petri dish. Get back to work.

  • what a tangle web they weave

    Try looking at the oil barons/CIA spooks driving up oil prices, which rolls up gasoline prices, which rolls up all prices that require travel to deliver. It’s the oil barons stupid!! With energy efficiency and auto MPG at the highest ever, they are cruelly and desperately squeezing everything they can out of the price of a gallon of gas before everyone has at least a hybrid in 10 years.