Food-price inflation has gathered pace of late, with wheat, corn, soybeans and rice all hitting records this year; rice prices have soared by 141% since January, with US futures gaining 17% last week alone. Between February 2005 and February 2008, food prices rose by an average of 83%, says the World Bank.

With food comprising around half of household consumption in some countries, civil strife is growing. Riots have broken out in at least a dozen countries – including Senegal, Mexico and Egypt, where the president has ordered the army to start baking bread; the Philippines has made rice hoarding punishable by life imprisonment; in Haiti, protests over rice prices have forced the resignation of the prime minister.

According to Rob Zoellick, president of the World Bank, food inflation could push at least 100 million people back into poverty (defined as earnings of $1 a day) and set back global progress against poverty by up to seven years.

Mounting wealth in developing countries has stimulated demand for food in general, and particularly meat and dairy products, which increases demand for grains to feed livestock. Soaring energy prices have increased demand for biofuels, which means more grains are devoted to ethanol. Almost all the expansion in global corn production from 2004 to 2007 was put towards American biofuels production, reckons the World Bank. Urbanisation has reduced agricultural land and agricultural productivity has made only modest progress over the past two decades. Stockpiles are at their lowest in 30 years.

Nor does it help matters that no fewer than 48 countries have imposed price controls, export restrictions or consumer subsidies, as The Economist notes. Such measures have distorted the price signals “that would otherwise have encouraged farmers to grow more food”. Meanwhile, investors heading for commodities as a hedge against inflation and dollar weakness have also underpinned prices; according to Christoph Eibl of Tiberius Asset management, $40bn flowed into raw materials markets in the first quarter of 2008 alone. The world now faces a “downward spiral of trade restrictions, higher prices for staples and starvation”, says the managing director of the IMF, Dominique Strauss-Kahn.

With China and other emerging countries now worried about food-induced inflation, they are raising interest rates, which is a “dangerous development” for a world economy relying on domestic demand in the emerging world, says Anatole Kaletsky in The Times. And as the Asian Development Bank points out, Asian government subsidies to cushion the impact of food-price rises is posing a threat to national budgets.

The ultimate answer to high food prices is to boost production, but that won’t happen if governments continue to prevent producers from receiving the right price, lowering incentives to boost production and keeping prices high, says Stephen King in The Independent. “For the emerging world, this has the potential to turn into an economic shock on a par with the oil price increases which hit the Western world in the 1970s.”

http://www.moneyweek.com/file/46017/the-silent-tsunami-threatening-the-world-economy.html

Don’t you believe it.

I’ll grant you, the alliterative moniker for the crisis cooked up by WFP Executive Director Josette Sheeran was clever – if not downright brilliant: It was picked up by dozens of global news services and was actually featured prominently in quite a few headlines. It’s also one of the most accurate descriptions of a growing global crisis that I’ve ever seen.

You see, the “silent tsunami” is real. And as the damage escalates, the silence will devolve into a grating global cacophony of pain, poverty and protests. The folks at the U.N., the World Bank, and in global capital cities from Beijing to Washington all have vowed to fight back. In Great Britain, the government this week hosted a world summit at its offices on Downing Street.
But there’s a problem. And it’s a pretty big one: You see, even the folks who are planning to battle back against the “silent tsunami” aren’t fully armed in that they don’t really understand all its causes.

Nor do the victims understand the very real steps that they can take to protect themselves – let alone how to offset at least some of the damage by profiting on the very real global trends that have whipped up this worldwide food firestorm.

Let me explain …

Fanning the Flames of a Global Food Crisis

By “silent tsunami,” Sheeran is referring to soaring worldwide food prices – the first truly global food crisis since World War II. The WFP says the crisis already threatens 20 million children in the world’s most-poverty-stricken regions, and has ignited demonstrations and protests in Africa, across Asia, and throughout the Caribbean. This unrest even led to deaths in Haiti and in Cameroon, where civil servant Samuel Ebwelle told a journalist from The Associated Press that the thought of continued escalations in the price of food scares him deeply.

“We are getting to the worst period of our life,” said Ebwelle, 51. “We’ve had to reduce the number of meals we take a day from three to two. Breakfast no longer exists on our menu.”
World Bank President Robert B. Zoellick claims that as many as 100 million people could be forced deeper into poverty. And U.N. Secretary-General Ban Ki-moon says the soaring price of food is undermining a goal of slashing worldwide poverty in half by 2015.

So just how bad is this “tsunami?”

According to the World Bank, worldwide food prices have risen a scorching 83% over the past three years. The price of rice – a staple of daily diets all across Asia – has actually doubled in the last five weeks. [Here in the United States, the Sam’s Club warehouse stores unit of Wal-Mart Stories Inc. (WMT) actually began limiting rice purchases yesterday (Wednesday)].
Research such as the World Bank stats certainly give the crisis a somewhat daunting feel, but it’s when an American consumer takes a look at actual grocery store prices that the impact finally starts to hit home. Consider these prices from a U.S. Bureau of Labor Statistics study:

• A dozen large Grade A eggs that two years ago cost $1.33 now costs a U.S. shopper $2.17 – 63% more.
• A pound of whole wheat bread has jumped 42% during that same period, moving from $1.32 to $1.88.
• A gallon of whole milk has jumped 20%, moving from $3.22 to nearly $3.90.
• And a pound of white flour, a key ingredient in so many things, has soared 39%, from 33 cents to 46 cents.

Add in the impact of rising fuel and energy prices – regular gasoline that consumers use to drive to their jobs or run family errands is up 18% in the past year, while the diesel fuel that powers the trucks and trains that deliver goods from producers to market has soared 44%.

The bottom line is this: In the U.S. market, inflationary forces have struck hard at staple goods – the essentials like groceries, gasoline and healthcare – causing them to soar, while having very little impact on luxury goods that many American consumers are avoiding right now anyway.

Because food and energy costs are backed out of – not included in – the so-called “core” rate of inflation, domestic pricing pressures still look fairly benign, with inflation running at a tad bit more than 4%.

But clearly the “real” inflation rate is much higher. And U.S. consumers and investors know it, because they’re worried – if not afraid.

According to a USA Today/Gallup Poll released yesterday (Wednesday), 73% of the American consumers surveyed cited soaring food costs in the form of rising grocery bills as a concern, while nearly half said that food inflation has caused a “hardship” for their households.

That’s here in the United States. Let’s now take a look overseas, where the rising prices aren’t merely a “hardship” – they’re a disaster.

Causes, Effects, Solutions

The U.N.’s World Food Programme says the soaring food prices will leave a $755 million shortfall in its $2.9 billion budget, forcing cuts in vital programs.
“This is the new face of hunger – the millions of people who were not in the urgent hunger category six months ago, but now are,” Sheeran said. “The response calls for large-scale, high-level action by the global community, focused on emergency and longer-term solutions.”

But here’s the crux of that problem: Before you can fix a problem, you have to understand its root causes. And it’s clear to us that very few folks really see the big picture.
When asked about the causes for the massive run-up in food prices, “experts” listed many of the same catalysts:

• Rising fuel costs.
• The use of certain foods – such as corn – for the creation of biofuels that are being developed to combat global warming and to take up the slack for the increase in conventional fuel prices.
• Rising populations.
• Growing demand from emerging economies – especially China and India.
• Floods and droughts that are being blamed on ongoing climate changes.

Unfortunately, they forgot two causes – and they’re not small: The first is the implosion of the U.S. subprime mortgage bubble, and the second is a greenback that’s so weak that it’s threatening to disappear altogether. Both are part and parcel of inflation.

By creating all the cheap money that created, first, the U.S. Internet stocks bubble and, second, the U.S. housing bubble, the U.S. Federal Reserve essentially created the subprime mortgage bubble. When that burst, as all bubbles must, it created a global financial crisis that forced all the world’s key central banks to create additional liquidity in an attempt to basically bail out the world’s developed economies [and lest we try and blame the United States for all of this, let’s not forget that Great Britain has a humdinger of a housing bubble that’s deflating, but hasn’t quite fully collapsed].