Fear for Riots after New Food Price Highs

8 June 2011 FDI Team

Background

On 19 May 2011, the Chicago Board of Trade indicated that wheat futures rose to US$8.17 per bushel – a 91 per cent increase in less than a year. It is feared that riots in developing countries will be a consequence of the rising food prices. This is not necessarily the end of the soaring prices.  Further rises are predicted over the next few weeks if Europe’s two month drought continues.

Comment

Dry weather patterns in Europe and recent floods in the United States, as well as Russia’s export ban on wheat, have increased Standard and Poor’s GSCI Agriculture Index of wheat, corn and soy beans by 7.1 per cent over the last two weeks. Wheat prices are significantly influenced by the ban in Russia, which is predicted to be in place until at least September. Abandoning the ban would result in an increase in domestic wheat prices, which would clash with parliamentary and presidential Russian elections in the next Northern Hemisphere spring.

Oxfam’s head of research, Duncan Green, explains that price increases on key food commodities will affect the livelihood of many Europeans, but the effect in developing nations will be catastrophic. Oxfam indicates that, in India, the average price for a litre of milk is $15 and a kilogram of rice $9. In Cairo, fish and red meat are so expensive that locals rely on the relatively cheap price of bread to allay hunger. In May 2011 in an article titled ‘People Flee Drought-Stricken Eastern Africa’ published in FDI’s Strategic Weekly Analysis Vol. 2, № 17, we warned of the economic, ecological and social outcomes of the increasing cereal prices in Somalia and other Eastern African nations.

Abdolreza Abbassian, a UN economist, explains that, ‘one way or another, rising food prices bring hardship on their people and you can’t rule out the possibility of further food riots.’ At the beginning of this year, 20 people died when a food price riot escalated in Cameroon, followed by similar riots in Mexico, Pakistan, Senegal, Mauritania and India. In the West African nation of Burkina Faso, riots led to the burning of government buildings and looting of several stores.

Arab countries are more vulnerable to food price fluctuations than any other region. In the Middle East, wheat is the biggest commodity consumed, providing people with cheap, adequately nutritious bread, pasta and couscous. According to the UN Food and Agriculture Organization, Egypt and Algeria consume more than twice the amount of wheat consumed in the US. Tunisia is the biggest wheat user with 217 kilograms consumed per capita per year, in comparison to 80 kilograms in the US.

Like Tunisia and Egypt, many Middle Eastern governments import more than half of their wheat, so that they can provide a discount for the impoverished population. Wheat imports into Middle Eastern nations are predicted to double from 14.4 million metric tons in 2010 to 29.5 million metric tons in 2050, as a result of population growth. In the current scenario, which indicates an increase in wheat prices and a higher demand, Middle Eastern nations will arguably become more vulnerable. This could lead to these nations relying on western nations for financial aid. For example, in February, Egypt purchased western wheat for US$361 ($339.15) a tonne, whereas only eight months earlier this wheat was valued at US$172 ($161.63) per tonne. At the current price, Egypt spends six to seven per cent of its national revenues on foreign wheat.

Moreover, although wheat imports in the Middle East have become more expensive over the last 12 months, governments have not reduced subsidies for fear of inciting violent riots. The Tunisian Office des Céréales will often sell wheat to privately-owned flour mills at a fixed price, which is considerably lower than what the government paid for it.

It is evident that if governments in high wheat consuming Middle Eastern nations, fail to deliver relatively low food prices there will be widespread discontent, which could lead to instability in the region.

Alain Nellen

Future Directions International Research Intern

Global Food and Water Crises Research Programme

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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