Wednesday, February 13, 2008

As Asia Food Prices Bite, Analysts Warn of Worse to Come

Something I've been speaking about for a long while... continues to percolate into the media... not that it matters because it's not about the United States ;) and of course only the US really matters in this globe, but there does appear to be a whole world out there (fathom that?)... and a lot at the bottom are going to be suffering madly... World of Shortages. World of Shortages. World of Shortages. Too many humans. Too few resources. Even the minor resources like... food. Perhaps just like we are getting "2 Americas", we will have "2 Asias" - those who can eat, and those who cannot... ? (pardon me for my socialist rant in a purely capitalistic blog) ;)

This could be the great debate going forward - food for food? or food for fuel? And from this article it sounds like the US is not the only place... Europe, Thailand, they all are embarking on similar plans, not realizing how tightly wound the world food supplies truly are. Truly looking like a coming crisis. Maybe I need to rethink not being in Monsanto (MON) ... even at this high valuation. Crop yields need to go up one way or the other.
  • Rising food prices have hit Asia's poor so hard that many have taken to the streets in protest, but experts see few signs of respite from the growing problem. An array of factors, from rising food demand and high oil prices to global warming, could make high costs for essentials such as rice, wheat and milk a permanent fixture, they say.
  • The agency's figures show food prices globally soared nearly 40 percent in 2007, helping stoke protests in Myanmar, Pakistan, Indonesia and Malaysia. Yet Asian economic growth is a key reason why prices rose, said Joachim von Braun, from the International Food Policy Research Institute. "High growth in per capita income, especially in Asia, is driving demand for food," said von Braun, the Washington-based group's director general.
  • At the same time, Asia's growth has left many of its poor behind, he added. They spend between 50 and 70 percent of their meagre incomes on food, making price rises especially debilitating.
  • Apart from overall higher food demand, changes in taste favouring meat are said to be pushing up prices, since farmed animals feed heavily on grain. Drought and bad weather, high oil prices stoking transport costs, spiking biofuel demand and low reserves have also played their part, experts say.
  • "In Australia, we lost almost a year of wheat due to drought," said Katie Dean, an economist at ANZ Bank in Sydney. Cold weather caused grain crops to fail in Europe and the United States, while bird flu culls and disease outbreaks hit Asian poultry and meat supply, she added, citing as an example pig diseases in China.
  • The price of rice rose around 70 percent in Bangladesh last year. It now stands at around 50 cents per kilo (2.2 pounds), but many Bangladeshis live on less than a dollar per day.
  • Thailand, for instance, now requires that all its diesel fuel includes a component made from palm oil, which is also used for cooking. However, the new regulation has sent palm oil prices soaring, contributing to shortages amid shrinking supplies.
  • The UN food agency's figures show the amount of US maize used for biofuel has doubled since 2003, and predict European wheat use for ethanol could rise 12-fold by 2016.
  • Such trends have led worried Asian governments to address the rise in food prices following popular unrest. Indonesia has cut tariffs on soybean imports, a staple food it gets mostly from the United States, and wants to curb its reliance on imports.
  • Vietnam said it would suspend rice exports, and India did so last year
  • But while economists expect food supplies to rise somewhat in response to higher prices, Macintosh said others doubted it was that easy. Urbanisation and industrialisation in Asia were eliminating farmland and soaking up scarce water resources, he added.
  • Meanwhile, government policies were trying to push people out of subsistence agricultural lives into the industrial sector and urban jobs.
  • "The key is to increase the productivity per hectare right across Asia," he said. "But that is a very long-term fix."
  • Financial speculators have even begun betting the price of items like wheat and rice will rise, making the picture still more volatile. (ahh, our friends the financial speculators - always exploiting some market) :)
  • "Even if prices fall," cautioned Abbassian, "the chances they will come down substantially are perhaps not there." (now you're talking...)
This is where I post my daily comment about how I am buying yet more Powershares DB Agriculture Fund (DBA) ... ;)

Some charts

Long Powershares DB Agriculture Fund in fund and personal account

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