What pushes food prices up? What's going to happen?

Riots and hunger feared as demand for grain sends food costs soaring

· Expert to warn industry of threats to world supply
· Biofuels and Chinese boom put pressure on harvests

Jonathan Watts in Beijing
Tuesday December 4, 2007

Guardian

The following correction was printed in the Guardian's Corrections and clarifications column, Wednesday December 5 2007

In the article below we said the annual general meeting of the International Food Policy Research Institute was being held in Beijing. That should have been the Consultative Group on International Agricultural Research. This has been corrected.

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The risks of food riots and malnutrition will surge in the next two years as the global supply of grain comes under more pressure than at any time in 50 years, according to one of the world's leading agricultural researchers.

Recent pasta protests in Italy, tortilla rallies in Mexico and onion demonstrations in India are just the start of the social instability to come unless there is a fundamental shift to boost production of staple foods, Joachim von Braun, the head of the International Food Policy Research Institute, warned in an interview with the Guardian.

The growing appetite of China and other fast-developing nations has combined with the expansion of biofuel programmes in the United States and Europe to transform the global food situation.

After decades of expanding crop yields and falling food prices, the past year has seen a sharp rise in the cost of wheat, rice, corn, soya and dairy products.

"Demand is running away. The world has been consuming more than it produces for five years now. Stocks of grain - of rice, wheat and maize - are down at levels not seen since the early 80s," said von Braun, whose organisation is the world's largest alliance of agricultural researchers, economists, and policy experts.

So far, crises have been averted because states have eaten into national stocks, but this could be set to change because China, in particular, has run down its supplies.

"Over the next 12 to 24 months we are in a fairly risky situation. Large consuming nations, particularly China, will feel pressed to enter international markets to bid up prices to unusual levels," von Braun warned ahead of a speech today to the Consultative Group on International Agricultural Research's AGM in Beijing.

Thanks to its manufacturing prowess China has huge foreign exchange reserves and could buy the global food crop several times over. But its consumers are already feeling the cost of food inflation. According to the local media three shoppers died last month in a stampede at a supermarket in Chongqing that was offering cheap rapeseed oil. The threat of instability has prompted prime minister Wen Jiabao to make the fight against food price rises one of his government's priorities. So far it seems a losing battle.

Economic growth - estimated at 11.5% in the first nine months of the year - has made Chinese consumers wealthier, while urbanisation and globalisation has changed their diet. In October the government announced pork prices were up more than 50%, vegetables 30% and cooking oil 34% compared with the year before.

The knock-on is felt across the world. In Britain and other rich nations it means a few more pence for breakfast cereal in the short term and a slightly higher cost for toys, clothes and other China-made goods. But for the world's poorest communities the rises will have a potentially devastating effect.

Bangladesh has had to ask for half a million tonnes of food aid - a severe blow to the pride of a country that had been trying to wean itself off international assistance. Bangladeshi officials say the price of cooking oil - of which it imports 1.2m tonnes a year - has almost tripled in the past two years because it is now valued as an alternative to diesel oil. More worryingly, their main staple of rice is hard to buy at any price because India, Vietnam and Ukraine have cut exports.

Added to this are the pressures caused by global warming, which have been blamed for the droughts that damaged crops in Australia this year.

The social tensions caused by rising food prices are already evident, says von Braun. "The first sign was the tortilla riot in Mexico city, where 70,000 took to the streets. I think that was only the beginning - there will be more," said von Braun. "For a year or two countries can stabilise with stocks. But the risk comes in the next 12 to 24 months. The countries that cannot afford to buy will be the losers, while those with huge foreign exchange reserves will bid up the world market."

Von Braun called on Europe to reconsider its biofuel policies, to provide more aid to poor nations, to keep markets open and to boost production.

The forces pushing up food prices

1 Rising consumption: The appetite of fast-growing nations, such as China, is rising as economic booms cause a surge in demand for meat and dairy products

2 Competition from biofuels: The cars of the rich are now rivalling the bellies of the poor for corn, cane and edible oils

3 Climate change: Global warming is putting pressure on water needed to irrigate crops

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