Grain shortage drives up price of bread

RNW archive

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Bread, chapatis, pizzas, cattle fodder: anything containing wheat is about to become much more expensive. Grain prices have exploded in the past couple of weeks as a result of extreme weather condition, forest fires in Russia and speculation at corn exchanges. Apparently, we have learned nothing from the food crisis of two years ago.

The grain fields in the northern hemisphere have taken a beating. Grain superpower Canada is facing a smaller-than-usual crop as a result of superfluous rainfall. The crops in major grain-exporting countries such as Russia, Ukraine and Kazakhstan have partly failed as a result of extreme drought. Russia has banned all exports until the end of this year. Ukraine and Kazakhstan – who, according to the United Nations Food and Agriculture Organisation are responsible for 30 percent of world production – are considering following suit. 

On top of which there is widespread unrest in the financial markets, says Dutch agricultural economist Niek Koning. 'When the stock market and the housing market are in trouble, a huge amount of capital floods the grain market. Grain is then used for speculation, which can seriously boost price increases”.
 
Waiting for the south
Only two short years ago rioting broke out in dozens of countries after grain prices doubled. Are we on the eve of another crisis? Niek Koning says: 'We know that grain prices have gone up by about one-third since June. If they will not go up any further, the problems won’t be all that serious, because grain stocks are quite big as a result of the past two years”.
 
Major problems would only arise if crops in the southern hemisphere also fell short, for instance in major producing countries such as Australia and Argentina. And continued financial unrest and falling stock prices would also strongly affect grain prices.
 
Egypt
Middle Eastern countries import large quantities of grain, so they are facing the most serious problems. According to Niek Koning, “Egypt had already signed contracts with Russia, but they can forget about that grain because of the export ban. They will have to buy grain elsewhere on the world market at much higher prices, for instance from the European Union”.
 
Really serious problems could arise in poor Asian countries and regions, for instance Bangladesh and the east of India. Most of the population of these countries spend half their income on food. When food prices suddenly go up, they can no longer survive. It is these countries that saw food riots break out two years ago.
 
The Netherlands will only experience limited consequences as a result of higher grain prices. Dutch farmers on the one hand will reap the benefits of higher grain prices, but the country only produces one quarter of the grain it consumes. The rest is imported from France, Germany and Belgium, for which a higher price will now have to be paid. So dairy farmers would be facing higher feed prices.
 
Buffers
During the previous grain crisis, a plan was drawn up to create a global system of buffer stocks to cushion price fluctuations on the grain market, but nothing has come of it so far.
 
On the contrary, says Niek Koning: “in the past few years, the pendulum has been swinging the other way. Until about 20 years ago, the United States and Europe maintained huge government-controlled stocks of grain. However, policy makers have increasingly been abolishing these stocks, arguing that a free market would balance itself out. In practice, the opposite has happened, but politicians still believe it to be true”.