“A great book which should wake up humankind!” –Klaus Schwab, World Economic Forum
Chapter 10. Redefining Security: The Politics of Food Scarcity
For more than 40 years, international trade negotiations have been dominated by grain-exporting countries—principally the United States, Canada, Argentina, and Australia—pressing for greater access to markets in importing countries. Now the world may be moving into a period dominated not by surpluses but by shortages. In this case, the issue becomes not exporters’ access to markets but importers’ access to supplies. 10
The behavior of exporters in recent years shows why grain-importing countries should be concerned. In early September of 2002, Canada—following a harvest decimated by heat and drought—announced that it would export no more wheat until the next harvest. Two months later, Australia, another key exporter, said that because of a short harvest it would supply wheat only to its traditional buyers. And in the summer of 2003, during the crop-withering heat waves in Europe, the European Union announced that it would not issue any grain export permits until the supply situation improved. 11
A similar situation developed in Russia following a poor harvest in 2003. Facing a rise in bread prices of more than 20 percent, in January 2004 the government imposed an export tax of 24 euros ($30) per ton on wheat, effectively ending wheat exports. The tax continued into May. 12
In late August 2004, China approached Viet Nam to buy 500,000 tons of rice. The leaders in Hanoi responded by saying that the rice could not be supplied until the first quarter of 2005 at the earliest. This is because the Vietnamese government had imposed export limits of 3.5 million tons for the year, or just under 300,000 tons per month, out of fear that growing external demand for its rice would lead to overexporting and thus to rising domestic prices. 13
This response is of interest because Viet Nam is the world’s second-ranking rice exporter after Thailand. Thailand, Viet Nam, and the United States account for 16 million of the 25 million tons of world exports. In addition to China, more than 30 other countries import substantial amounts of rice, ranging from 100,000 tons a year for Colombia and Sri Lanka to 1.8 million tons for Indonesia. 14
China’s rice crop shortfall in 2004 of 10 million tons hangs over the world market like a sword of Damocles. Where the rice will come from is not clear. What China may do in trying to import such large quantities is simply drive up world rice prices. If it had attempted to cover its shortfall in 2004 entirely by imports, world rice prices would almost certainly have doubled or tripled, as they did in 1972–74, forcing low-income rice-consumers to tighten their belts. 15
The big test of the international community’s capacity to manage scarcity may come when China turns to the world market for massive imports of 30, 40, or 50 million tons of grain per year—demand on a scale that could quickly overwhelm world grain markets. When this happens, China will have to look to the United States, which controls nearly half the world’s grain exports. 16
This will pose a fascinating geopolitical situation: 1.3 billion Chinese consumers, who have a $120-billion trade surplus with the United States—enough to buy the entire U.S. grain harvest twice—will be competing with Americans for U.S. grain, driving up food prices. In such a situation 30 years ago, the United States would simply have restricted exports, but today it has a stake in a politically stable China. The Chinese economy is not only the engine powering the Asian economy, it is also the only large economy worldwide that has maintained a full head of steam in recent years. 17
Within the next few years, the United States may be loading one or two ships a day with grain for China. This long line of ships stretching across the Pacific, like an umbilical cord providing nourishment, may link the two economies much more closely than ever before. Managing this flow of grain so as to satisfy the needs of consumers in both countries may become one of the leading foreign policy challenges of this new century.
The risk is that China’s entry into the world market will drive grain prices so high that many low-income developing countries will not be able to import enough grain. This in turn could lead to political instability on a scale that will disrupt global economic progress. What began with the neglect of environmental trends that are impairing efforts to expand food production could translate into political instability on a scale that interferes with international trade and capital flows, thus halting economic progress. At this point, it will be clear that our economic future depends on addressing long-neglected environmental trends.
How exporting countries make room for China’s vast needs in their export allocations will help determine how the world addresses the stresses associated with outgrowing the earth. How low-income, importing countries fare in this competition for grain will also tell us something about future political stability. And, finally, how the United States responds to China’s growing demands for grain even as it drives up grain and food prices for U.S. consumers will tell us much about the shape of the new world order.
If substantially higher grain prices are needed to bring additional agricultural resources into play, whether in boosting water productivity, which effectively expands the supply, or bringing new land into play in Brazil, how will the world adjust? It may be that the laissez-faire, independent decisionmaking of national governments will have to blend into a more coordinated approach to managing food supplies in a time of scarcity.
Unfortunately, the government of China contributes to global food insecurity by refusing to release data on its grain stocks, leaving the international community to try and estimate them independently. This leads to a great deal of uncertainty and confusion, as can be seen in three substantial revisions of estimates for China’s grain stocks in the last four years by the U.S. Department of Agriculture (USDA) and the Food and Agriculture Organization (FAO). While holding this information close to the vest gives Chinese grain buyers an advantage in the world market, it makes it extremely difficult for the world to plan for, and thus respond to, potentially huge future import needs. 18
Because the last half-century has been dominated by excessive production and market surpluses, the world has had little experience in dealing with the politics of scarcity outside a brief period in 1972–74. In 1972, with a poor domestic harvest in prospect, the Soviets entered the world wheat market secretively and managed to tie up almost all the world’s exportable supplies of wheat before governments of either exporting or importing countries realized what was happening. When this was followed by bad weather and below-average harvests over the next two years, world wheat and rice prices doubled, creating serious problems for importers. The United States, which accounted for half of the world’s grain exports, restricted sales to certain countries; even food aid shipments favored “friendly countries”—those that supported the United States in U.N. votes, for example. 19
As surpluses are replaced with scarcity, there is a need to pay more attention to carryover grain stocks, the amount in the bin when the new harvest begins. FAO has established a minimum-security stocks target of 70 days of consumption. Once stocks drop below this level, grain prices become volatile, often driven by the latest weather forecast in a key food-producing country. With stocks at 63 days of consumption in 2004, a major shortfall in one or two major food-producing regions in 2005 could create chaos in world grain markets. Yet despite the importance of this issue, it gets little attention at the U.N. Security Council. Nor has the G-8, the group of eight large industrial countries, focused on it in annual meetings. 20
One reason food shortages do not get the attention they once did is because famine, in effect, has been redefined. At one time, famine was a geographic phenomenon. When a country or region had a poor harvest, its people often faced famine. Given the growing integration of the world grain economy and today’s capacity to move grain around the world, famine is concentrated much less in specific geographic regions and much more among income groups. Food shortages now translate into higher worldwide prices that affect low-income people throughout the world, forcing many to try to tighten their belts when there are no more notches left.
In the event of life-threatening grain price rises, a tax on livestock products could help alleviate temporary shortages. This would reduce consumption of grain-fed livestock products—meat, milk, and eggs—and thus free up for human consumption a small share of the grain normally fed to livestock and poultry. As noted earlier, in the United States, a reduction in grain consumption per person from 800 to 700 kilograms by moving down the food chain somewhat would not only leave most Americans healthier, it would also reduce grain consumption by some 30 million tons. That would be enough to feed 150 million people in low-income countries. At a time when grain stocks are at an all-time low and the risk of dramatic price jumps is higher than at any time in a generation, a tax on livestock products is the one safety cushion that could be used to buy time to stabilize population and restore economic stability in the world food economy. 21
10. USDA, op. cit. note 1.
11. “Wheat Board Pulls Out of World Market,” Canada Press, 6 September 2002; “Drought Threat to Australian Summer Crops,” Financial Times, 27 November 2002; Michael Byrnes, “Australia Drought Further Cuts Crops,” Planet Ark, 23 October 2002; “The Spector of Starvation,” New York Times, 15 June 2002; “Poland Implements Grain Export Fees,” Dow Jones & Company, Inc., 11 September 2003.
12. “Russian Government Sets Grain Export Duty for Period Until May 1,” ITAR-TASS News Agency, 15 December 2003.
13. “Vietnam Says China Seeks 500,000 T Rice, Paddy,” Reuters, 31 August 2004.
14. USDA, op. cit. note 1.
15. Ibid.; prices in IMF, op. cit. note 2.
16. USDA, op. cit. note 1.
17. United Nations, op. cit. note 3; U.S. Census Bureau, Foreign Trade Statistics, “Trade: Imports, Exports and Trade Balance with China,” at www.census.gov/foreign-trade/balance/c5700.html, updated 10 September 2004
18. Agricultural production databases at USDA, op. cit. note 1, and FAO, FAOSTATStatisticsDatabase, at apps.fao.org, updated 24 May 2004.
19. USDA, op. cit. note 1; IMF, op. cit. note 2; Lester R. Brown and Erik P. Eckholm, By Bread Alone (New York: Overseas Development Council, 1974), pp. 69–72.
20. FAO, The World Food Summit Goal and the Millennium Goals, Rome, 28 May–1 June 2001, at www.fao.org/docrep/ meeting/003/Y0688e.htm; FAO, The State of Food Insecurity in the World 2002 (Rome: 2002), p. 4; grain stocks from USDA, op. cit. note 1.
21. USDA, op. cit. note 1; United Nations, op. cit. note 3.
Copyright © 2004 Earth Policy Institute