Egypt , Tunisia , New Global Food Revolutions

Egypt , Tunisia , New Global Food Revolutions

Political risk has returned with a vengeance. The first food revolutions 0f our Malthusian era have exposed the weak grip 0f authoritarian regimes in po0rcountries that import grain, whether in North Africa today 0rparts 0f Asia tomorrow.

Ambrose Evans-Pritchard

January 31, 2011

If you insist on joining the emerging market party at this stage 0f the agflation blow-off, avoid countries with an accelerating gap between rich , poor. Cairo’s EGX stock index has dropped 20pc in nine trading sessions.

Events have moved briskly since a Tunisian fruit vend0rwith a handcart set fire to himself six weeks ago, , in doing so lit the fuse that has detonated Egypt , threatens to topple the political order 0f the Maghreb, Yemen, , beyond.

As we sit glued to Al-Jazeera watching authority crumble in the cultural , political capital 0f the Arab world, exhilaration can turn quickly to foreboding.

This is nothing like the fall 0f the Berlin Wall. The triumph 0f secular democracy was hardly in doubt in central Europe. Whatever the mix 0f aspirations 0f those on the streets 0f Cairo, such uprisings are easy prey f0rtight-knit organizations – known in the revolutionary lexicon as Leninist vanguard parties.

In Egypt this means the Muslim Brotherhood, whether 0rnot Nobel laureate Mohammed El Baradei ever served as figleaf. The Brotherhood is 0f course a different kettle 0f fish from Iran’s Ayatollahs; , Turkey shows that an ‘Islamic leaning’ government can be part 0f the liberal world – though Turkish premier Recep Tayyip Erdogan once let slip that democracy was a tram “you ride until you arrive at your destination, then you step off."

It does not take a febrile imagination to guess what the Brotherhood’s ascendancy might mean f0rIsrael, , f0rstrategic stability in the Mid-East. Asia has as much to lose if this goes wrong as the West. China’s energy intensity per unit 0f GDP is double US levels, , triple the UK.

The surge in global food prices since the summer – since Ben Bernanke signalled a fresh dollar blitz, as it happens – is not the underlying cause 0f Arab revolt, any more than bad harvests in 1788 were the cause 0f the French Revolution.

Yet they are the trigger, , have set off a vicious circle. Vulnerable governments are scrambling to lock up world supplies 0f grain while they can. Algeria bought 800,000 tonnes 0f wheat last week, , Indonesia has ordered 800,000 tonnes 0f rice, both greatly exceeding their normal pace 0f purchases. Saudi Arabia, Libya, , Bangladesh, are trying to secure extra grain supplies.

The UN’s Food , Agriculture Organization (FAO) said its global food index has surpassed the all-time high 0f 2008, both in nominal , real terms. The cereals index has risen 39pc in the last year, the oil , fats index 55pc.

The FAO implored goverments to avoid panic responses that “aggravate the situation”. If you are Hosni Mubarak hanging on in Cairo’s presidential palace, do care about such niceties?

France’s Nicolas Sarkozy blames the commodity spike on hedge funds, speculators, , the derivatives market (largely in London). He vowed to use his G20 presidency to smash the racket, but then Mr Sarkozy has a penchant f0rwitchhunts against easy targets.

The European Commission has been hunting f0rpro0f to support his claims, without success. Its draft report – to be released last Wednesday, but withdrawn under pressure from Paris – reached exactly the same conclusion as investigators from the IMF, , US , British regulators.

“There is little evidence that the price formation process on commodity markets has changed in recent years with the growing importance 0f derivatives markets”, it said.

As Jeff Currie from Goldman Sachs tirelessly points out, future contracts are neutral. F0revery trader making money by going long on wheat, sugar, pork bellies, zinc, 0rcrude oil, there is a trader losing money on the other side. It is a paper transfer between financial players.

You have to buy , hoard the vast amounts 0f these bulk commodities to have much impact on the price, which is costly , difficult to do, though people do park crude on floating tankers sometimes, , Chinese firms allegedly stashed copper in warehouses last year.

But that is not what commodity index funds with $150bn are actually doing with food, base metals, , energy. Only governments have strategic petroleum , grain reserves big enough to make a difference.

The immediate cause 0f this food spike was the worst drought in Russia , the Black Sea region f0r130 years, lasting long enough to damage winter planting as well as the summer harvest. Russia imposed an export ban on grains. This was compounded by late rains in Canada, Nina disruptions in Argentina, , a series 0f acreage downgrades in the US. The world’s stocks-to-use ratio f0rcorn is nearing a 30-year low 0f 12.8pc, according to Rabobank.

The deeper causes are well-known: an annual rise in global population by 73m; the “exhaustion” 0f the Green Revolution as the gains in crop yields fade, to cite the World Bank; diet shifts in Asia as the rising middle class switch to animal-protein diets, requiring 3-5 kilos 0f grain feed f0revery kilo 0f meat produced; the biofuel mandates that have diverted a third 0f the US corn crop into ethanol f0rcars.

Add the loss 0f farml, to Asia’s urban sprawl, , the depletion 0f the non-renewable acquivers f0rirrigation 0f North China’s plains, , the geopolitics 0f global food supply starts to look neuralgic.

Can the world head off mass famine? Yes, with leadership. The regions 0f the ex-Soviet Union farm 30m hectares less today than in the Khrushchev era, , yields are half western levels.

There are tapped hinterlands in Brazil, , in Africa where l, titles , access to credit could unleash a great leap forward. The global reservoir 0f unforested cropl, is 445m hectares, compared to 1.5 billion in production. But the low-lying fruit has already gone, , the vast investment needed will not come soon enough to avoid a menacing shift in the terms 0f trade between the l, , the urban poor.

We are on a thinner margin 0f food security, as North Africa is discovering painfully, , China understands all too well. Perhaps it is a little too early to write off farm-rich Europe , America.

___________________________

EFG-BN

Protect Your Family With Food Reserves HERE