As U.S. crop exports drop, global food prices rise.
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Global food prices are spiking upwards because of widespread drought in the U.S., the breadbasket of the world. Nearly 80 percent of the country's corn crops and over 11 percent of its soybean crops-which are major exports for the U.S. and an important source of animal feed-have been affected. Last month, soybean and corn prices were at record-breaking highs. Poor weather conditions in Kazakhstan, Russia, and Ukraine are also inflating global wheat prices; these countries typically produce around one-quarter of the world's wheat exports. The U.S. itself exports more wheat, corn, and soybeans than any other country.
While high food prices are devastating for importing countries that are already deeply food insecure, they can also be economically destabilizing for lower- and middle-income countries with big populations that import large amounts of food. Around the world, shortages and price spikes of everyday goods can throw societies into unrest and conflict. The current spike in food prices begs comparisons with other recent rises in food price that led to widespread protests. In 2008, high food prices incited protests and turmoil in a variety of countries, including Egypt, Ethiopia, Indonesia, and the Philippines.
Arguably, food prices were one precipitating factor of the Arab Spring; in a report about the phenomenon, The Economist notes that in Egypt, local food prices increased by 37 percent from 2008 to 2010. The New England Complex Systems Institute (NECSI) has also done important work on the numerically demonstrable link between food crises and political instability in the MENA region, even "identify[ing] a specific food price threshold above which protests become likely."
Many governments subsidize food, so rising prices puts significant pressure on their budgets. Egypt is a case in point: the largest importer of wheat in the world, Egypt spends about 4 percent of its total budget each year on food subsidies, a drain on its coffers. As I've written previously, its subsidy programs are in need of reform. As the Egypt Independent reports, the government's draft budget proposes keeping overall subsidy levels the same, but shifting more towards food subsidies and away from fuel subsidies, which are particularly wasteful and tend to go toward the better off. This could help take the edge off the current food crisis, although given internal political dynamics in Egypt, the budget's future is uncertain. At the same time, the government is revising price controls on farmers that keep the amount they are paid for wheat artificially low. Increased prices for farmers would provide incentives for them to plant more wheat, although this does not help in the short term.
How can the U.S. minimize the impact of the drought on the rest of the world? There are no quick fixes, but as I and others have argued, the U.S. should reevaluate the 2007 law that compels gasoline to contain a certain amount of ethanol--a policy that channels some 40 percent of U.S. corn into gasoline and away from food each year. The New England Complex Systems Institute has also done fascinating research on the role of ethanol as well as investor speculation in food prices; as its president Yaneer Bar-Yam says "Given the possibility of price-driven famines, burning corn for cars is unconscionable." Scrapping the ethanol policy would reduce pressures on corn prices. This would be no panacea to today's tight global food supply chain, but it could mitigate the growing financial hardship and suffering around the world caused by the current spike in food prices.
This article originally appeared at CFR.org, an Atlantic partner site.
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