Monday, April 14, 2008

WSJ: Food Inflation, Riots Spark Worries for World Leaders

The rest of the world is finally catching on to a theme we've long been discussing - the food crisis. It finally hit the front page of the Wall Street Journal and as you know - unless it hits Barron's or the Wall Street Journal it doesn't matter in the investing world - Don Coxe and I are finally vindicated [Jan 18: One Lovely Voice Agrees with Me on Food Inflation] Remember the themes here - agflation, food protectionism (countries hording their own supplies to feed their own people), and massive social unrest. The government in Haiti fell this weekend. [Jan 30: Hungry Haitians Resort to Eating Dirt] And don't think it is not happening here in the lower rungs of our society - food banks are at severe shortages and the poor are suffering mightily....

We're always early here [Mar 31: Tensions Rise as World Faces Short Rations], so this is old news for readers and the basis for our investments in agricultural products/related products. And there is no easy answer - in fact we are helping to cause the problems with our ethanol boondoggle. [Mar 27: Farm Lobby Beats Back Assault on Subsidies]. It is actually quite a war - rich, Western countries using food for their energy needs - and poor developing countries with people starving. I cannot stress enough the social stress aspect of this; food is very different from oil - desperation will set in with food.

WSJ: Food Inflation, Riots Spark Worries for World Leaders
  • Finance ministers gathered this weekend to grapple with the global financial crisis also struggled with a problem that has plagued the world periodically since before the time of the Pharaohs: food shortages.
  • Surging commodity prices have pushed up global food prices 83% in the past three years, according to the World Bank -- putting huge stress on some of the world's poorest nations. Even as the ministers met, Haiti's Prime Minister Jacques Edouard Alexis was resigning after a week in which that tiny country's capital was racked by rioting over higher prices for staples like rice and beans.
  • Rioting in response to soaring food prices recently has broken out in Egypt, Cameroon, Ivory Coast, Senegal and Ethiopia. In Pakistan and Thailand, army troops have been deployed to deter food theft from fields and warehouses.
  • World Bank President Robert Zoellick warned in a recent speech that 33 countries are at risk of social upheaval because of rising food prices. Those could include Indonesia, Yemen, Ghana, Uzbekistan and the Philippines. In countries where buying food requires half to three-quarters of a poor person's income, "there is no margin for survival," he said.
  • Many policy makers at the weekend meetings of the International Monetary Fund and World Bank agreed that the problem is severe. Among other targets, they singled out U.S. policies pushing corn-based ethanol and other biofuels as deepening the woes.
  • "When millions of people are going hungry, it's a crime against humanity that food should be diverted to biofuels," said India's finance minister, Palaniappan Chidambaram, in an interview. Turkey's finance minister, Mehmet Simsek, said the use of food for biofuels is "appalling."
  • But the weekend's meeting produced few concrete results. Mr. Zoellick recently urged rich nations to contribute another $500 million to the United Nation's World Food Program, but he said that the U.N. has received commitments for only about half the money. (typical)
  • Last week, British Prime Minister Gordon Brown urged the G7 nations -- the U.S., Britain, Canada, France, Germany, Italy and Japan -- to develop a comprehensive strategy for the food problem, encompassing trade, agricultural productivity, technology, biofuels and short-term aid for poor countries. In the past, Britain has taken the lead in pushing the G7 to write off the debts of the world's poorest nations.
  • The situation in Haiti underscored some of the problems afflicting the world's poorest countries. Haiti has enough food in the marketplace to feed its populace, but prices have increased beyond the means of many of the urban poor to pay for it, said Michael Hess, an administrator in the U.S. Agency for International Development's Bureau for Democracy, Conflict and Humanitarian Assistance. "People are making two bucks a day," he said. "And we're seeing food prices go up around the world."
  • Aggravating the problem, in some countries food inflation has prompted a wave of protectionism. Countries usually impose trade barriers to imports to protect local industries and try to boost exports. But food-trade protectionism works the opposite way. Recently at least a dozen of 58 countries surveyed by the World Bank have reduced tariffs to food imports and erected barriers to exports in hopes of restraining food prices domestically and moving toward "self-sufficiency." (this is my theme of food protectionism that I said will be coming... well it is now here)
  • About 18 of the countries sampled by the World Bank also are boosting consumer subsidies and instituting price controls. That prompted a warning from U.S. Treasury Secretary Henry Paulson to "resist the temptation of price controls and consumption subsidies that are generally not effective and efficient methods of protecting vulnerable groups." He said, "They tend to create fiscal burdens and economic distortions while often providing aid to higher-income consumers or commercial interests other than the intended beneficiaries." (Does the King of US Socialism really have any right to say anything? Kettle? Pot? Black?)
  • During informal conversations and interviews, ministers mainly agreed that the U.S. policies on biofuels were especially harmful. U.S. ethanol is made from corn, which, ministers said, could be exported to feed the hungry, and benefited from tariffs that block Brazilian ethanol, which is produced much more efficiently from sugar cane.
  • The White House's Mr. Connaughton said the U.S. is working on developing "second generation" biofuels that would use varieties of grass or agricultural wastes -- not food -- as source material. "That's where we need to get to go," he said. (all in good time folks, if a few hundred million globally need to die so we can subsidize Iowa voters, so be it)
And again, don't discount the effect of the country with 20-25% of world's GDP, inflating its paper money supply at a rate of 20% as an exaggeration of inflation of ALL assets, including food. That's adding to the problem (not the root cause, just an inflammatory) And on we go... big talk, no action....

Long Powershares DB Agriculture Fund, and a bevy of fertilizer in fund

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