Energy, Food, Revolution - an Inextricable Link

If you want to see it in color, all you have to do is google image up a history of the price of oil and superimpose it on the price of various staple crops. Take a look at oil and then rice, soybeans, wheat and corn. Look closely at 2008, and at the present. I will put up a visual presentation of this material myself later this week, but if you'd like to see it sooner, it is right there to look at, no great challenge.

What we see is fairly simple - and incredibly complicated. The intertwining of markets, of energy and food, tied by biofuel production and national policies, and the fact that we are not in control of either one. And that when food and energy prices spike, the world is transformed.

In 2008, only Haiti underwent a major political change due to food price spikes, but there was unrest (how quickly we forget) around the world. Many of the names are similar - Egypt and Tunisia among them. There was unrest all over Asia as well, which should serve as a warning. In Egypt, the Egyptian army was set to work baking bread for hungry people and distributing it. For those caught by surprise by this - they shouldn't have been surprised.

In 2008 export restrictions exacerbated the crisis as Russia, Kazakhstan, India, Vietnam and other nations that produce large portions of the world's rice, wheat, corn and soybeans began to restrict exports to ensure supplies for their own hungry people. What began as a tight market was exacerbated as nations struggled to deal with their people's needs. Those tight markets drew speculators, which drove up the price further. High energy prices threatened the ability of farmers to afford inputs and threatened to reduce acreage planted. 1 billion people were starving - more than at any previous moment of human history.

The global economic crisis removed a little of the pressure - food prices and energy prices fell, there were still nigh-a-billion starving people but things seemed to get a little better. In a way, it could be argued that the collapse of the global economy in 2008 saved us from starving more than a billion, and from a radical and revolutionary reconsideration of our entire culture. Or, at least it staved it off for a short while.

Now it is back - and food and the intertwining of food and energy are again at the root of the disaster, as a very good _Independent_ article argues:

The first warnings of what was to come appeared in the form of a briefing paper on the website of the UN's Food and Agriculture Organisation in December. "Recent bouts of extreme price volatility in global agricultural markets," it said, "portend rising and more frequent threats to world food security. There is emerging consensus that the global food system is becoming more vulnerable and susceptible to episodes of extreme price volatility. As markets are increasingly integrated in the world economy, shocks in the international arena can now transpire and propagate to domestic markets much quicker than before."

The "shocks" all occurred a long way from Cairo and Tunis. They included fires in Russia last autumn which wiped out hundreds of thousands of acres of grain; heavy rains in Canada, destroying the wheat crop there; hot, dry weather in Argentina which destroyed the soybean crop; the Australian floods which ruined the wheat harvest. The Middle East accounts for one-third of worldwide wheat imports. The combined effect of these far-flung agricultural problems was to bump up the food price index by 32 per cent in the second half of 2010.

The FAO likens "extreme price volatility" to great natural disasters - major earthquakes, tsunamis, catastrophic cyclones. "Historically, bouts of such extreme volatility... have been rare," they say. "To draw the analogy with natural disasters, they typically have a low possibility of occurrence but bring with them extremely high risks and potential costs to society."

A similar chain of unconnected farming catastrophes in early 2008 led to a similar outbreak of "extreme price volatility" around the world which provoked food riots in more than 40 countries, from Haiti to Bangladesh, including Mexico, Uzbekistan and Eritrea but also involving several countries caught up in the present round of uprisings, including Egypt, Yemen, Morocco, Mauritania, Senegal and Zimbabwe. All were among the 80 countries around the world that combine low incomes with food deficits - the need to import food, bringing exposure to wildly fluctuating world market prices. In these poor countries, food purchases can consume 70 per cent of income. The result, when prices of flour and grains shoot up by 30 per cent, is extreme distress - the sort of distress that sends people out into the streets in fury.

We know how dramatically these situations can change the face of the world - most recently the collapse of the Soviet Union was due in large part to crashing energy markets that left the Soviets unable to buy adequate wheat on world markets. When the bread runs out, the riots begin and the world changes.

Economists worry about the "inflection point" of oil - when the cost of energy exceeds 5% or so of Global GDP. They miss the ways that food and energy have become inextricable - that is, the food crisis begins to emerge before energy prices rise to Global-North inflection prices. And, as I've argued myself in some detail over the years, the economic consequences for the world as a whole are dramatic. The just-making-it poor begin to starve. The slightly better off stop eating meat and pull their daughters out of school. The emergent middle class cuts back on luxury goods and foods - and the things driving the only segments of the economy doing well - emerging markets, begin to hurt.

The food crisis never really left us - but it went semi-dormant for a while. Now it is back and the world is in flux - and where it ends up, no one knows. What we do know is that our present world food situation is inextricably tied to the price of oil - the price of a resource for which demand is rising and supply is barely holding. It is going to be a bumpy ride!