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Food Is The New Gold PDF Print E-mail
Monday, 05 May 2008 13:34

Soaring Prices Unnerve Global Markets, Shake Governments, Threaten World's Poor

By ANTHONY FAIOLA | Washington Post April 28, 2008

The globe's worst food crisis in a generation emerged as a blip on the big boards and computer screens of America's great grain exchanges. At first, it seemed like little more than a bout of bad weather.

In Chicago, Minneapolis and Kansas City, traders watched from the pits early last summer as wheat prices spiked amid mediocre harvests in the United States and Europe and signs of prolonged drought in Australia.

But within a few weeks, the traders discerned an ominous snowball effect ? one that would eventually bring down a prime minister in Haiti, make more children in Mauritania go to bed hungry, even cause American executives at Sam's Club to restrict sales of large bags of rice.

As prices rose, major grain producers including Argentina and Ukraine, battling inflation caused in part by soaring oil bills, were moving to bar exports on a range of crops to control costs at home. It meant less supply on world markets. even as global demand surged. Prices for corn, soybeans, wheat, oats, rice and other grains began shooting through the roof.

At the same time, food was becoming the new gold. Investors fleeing Wall Street's mortgage-related strife plowed hundreds of millions of dollars into grain futures, driving prices up even more. By Christmas, a global panic was building. With fewer places to turn, and tempted by the weaker dollar, nations staged a run on the American wheat harvest. Major domestic U.S. mills in turn jumped in with their own massive orders, fearing that there would soon be no wheat left at any price.

"Japan, the Philippines, [South] Korea, Taiwan ? they all came in with huge orders, and no matter how high prices go, they keep on buying," said Jeff Voge, chairman of the Kansas City Board of Trade. "Prices are going up more in one day than they have during entire years in the past."

Governments In Turmoil The food price shock now roiling world markets is destabilizing governments, igniting street riots and threatening to send a new wave of hunger rippling through the world's poorest nations. From the beginning of 2005 to early 2008, prices jumped 80 percent, according to the United Nations' Food and Agriculture Organization.

The convergence of events has thrown world food supply and demand out of whack and snowballed into civil turmoil. After hungry mobs and violent riots beset Port-au-Prince, Haitian Prime Minister Jacques-Edouard Alexis was forced to step down this month.

At least 14 countries have been racked by food-related violence.

The U.N. World Food Program fears that the crisis will plunge more than 100 million of the world's poorest people deeper into poverty, forced to spend more and more of their income on skyrocketing food bills.

Prices for some crops ? such as wheat ? have already begun to descend off their highs. As farmers rush to plant more wheat now that profit prospects have climbed, analysts predict that prices may come down as much as 30 percent in the coming months.

But that would still leave a year-over-year price hike of 45 percent.

Few believe prices will go back to where they were in early 2006, suggesting that the world must cope with a new reality of more expensive food.

The Cost Of Coping People worldwide are coping in different ways. For the 1 billion living on less than a dollar a day, it is a matter of survival ? downgrading to cheaper foods, cutting out meals.

Countries that have driven food demand in recent years are now grappling with the cost of their own success ? rising prices.

Although China has tried to calm its people by announcing reserve grain holdings of 30 to 40 percent of annual production, anxiety is still running high. In at least one province there are reports of grain hoarding.

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