The new geopolitics of food

From the Middle East to Madagascar—and even closer to home—high prices are spawning land grabs and even toppling regimes. Welcome to the 21st-century food wars.

In the United States, when world wheat prices rise by 75 percent, as they have over the last year, it means the difference between a $2 loaf of bread and a loaf costing maybe $2.10. If, however, you live in New Delhi, those skyrocketing costs really matter. A doubling in the world price of wheat actually means that the wheat you carry home from the market to hand-grind into flour for chapattis costs twice as much. And the same is true with rice.

If the world price of rice doubles, so does the price of rice in your neighborhood market in Jakarta. And so does the cost of the bowl of boiled rice on an Indonesian family’s dinner table.

Welcome to the new economics of food. Prices are climbing, but the impact is not at all being felt equally. For Americans, who spend less than one-tenth of their income in the supermarket, the soaring food prices we’ve seen so far this year are an annoyance, not a calamity. But for the planet’s poorest 2 billion people, who spend 50 to 70 percent of their income on food, these soaring prices may mean going from two meals a day to one. Those who are barely hanging on to the lower rungs of the global economic ladder risk losing their grip entirely. This can contribute—and it has—to revolutions and upheaval.

Already in 2011, the U.N. Food Price Index has eclipsed its previous all-time global high; as of March it had climbed for eight consecutive months. With this year’s harvest predicted to fall short, with governments in the Middle East and Africa teetering as a result of the price spikes, and with anxious markets sustaining one shock after another, food has quickly become the hidden driver of world politics. And crises like these are going to become increasingly common. The new geopolitics of food looks a whole lot more volatile—and a whole lot more contentious—than it used to. Scarcity is the new norm.

Until recently, sudden price surges just didn’t matter as much, as they were quickly followed by a return to the relatively low food prices that helped shape the political stability of the late 20th century across much of the globe. But now both the causes and consequences are ominously different.

In many ways, this is a resumption of the 2007-2008 food crisis, which subsided not because the world somehow came together to solve its grain crunch once and for all, but because the Great Recession tempered growth in demand even as favourable weather helped farmers produce the largest grain harvest on record. Historically, price spikes tended to be almost exclusively driven by unusual weather—a monsoon failure in India, a drought in the former Soviet Union, a heat wave in the US. Midwest. 

Such events were always disruptive, but thankfully infrequent. Unfortunately, today’s price hikes are driven by trends that are both elevating demand and making it more difficult to increase production: among them, a rapidly expanding population, crop-withering temperature increases, and irrigation wells running dry. Each night, there are 219,000 additional people to feed at the global dinner table.

More alarming still, the world is losing its ability to soften the effect of shortages. In response to previous price surges, the United States, the world’s largest grain producer, was effectively able to steer the world away from potential catastrophe. From the mid-20th century until 1995, the United States had either grain surpluses or idle cropland that could be planted to rescue countries in trouble. When the Indian monsoon failed in 1965, for example, President Lyndon Johnson’s administration shipped one-fifth of the US. wheat crop to India, successfully staving off famine. We can’t do that anymore; the safety cushion is gone.

That’s why the food crisis of 2011 was for real, and why it may bring with it yet more bread riots cum political revolutions. What if the upheavals that greeted dictators Zine el-Abidine Ben Ali in Tunisia, Hosni Mubarak in Egypt, and Muammar al-Qaddafi in Libya (a country that imports 90 percent of its grain) are not the end of the story, but the beginning of it?

That is a scenario for opportunity but also challenges including major paradigm shifts of power and influence.

Get ready, farmers and foreign ministers alike, for a new era in which world food scarcity increasingly shapes global politics and farming methods.

The doubling of world grain prices since early 2007 has been driven primarily by two factors: accelerating growth in demand and the increasing difficulty of rapidly expanding production.

The result is a world that looks strikingly different from the bountiful global grain economy of the last century. What will the geopolitics of food look like in a new era dominated by scarcity? Even at this early stage, we can see at least the broad outlines of the emerging food economy.

On the demand side, farmers now face clear sources of increasing pressure. The first is population growth. Each year the world’s farmers must feed 80 million additional people, nearly all of them in developing countries. The world’s population has nearly doubled since 1970 and is headed toward 9 billion by midcentury. Some 3 billion people, meanwhile, are also trying to move up the food chain, consuming more meat, milk, and eggs.

As more families in China and elsewhere enter the middle class, they expect to eat better. But as global consumption of grain-intensive livestock products climbs, so does the demand for the extra corn and soybeans needed to feed all that livestock. (Grain consumption per person in the United States, for example, is four times that in India, where little grain is converted into animal protein. For now.

At the same time, the United States, which once was able to act as a global buffer of sorts against poor harvests elsewhere, is now converting massive quantities of grain into fuel for cars, even as world grain consumption, which is already up to roughly 2.2 billion metric tons per year, is growing at an accelerating rate.

A decade ago, the growth in consumption was 20 million tons per year. More recently it has risen by 40 million tons every year. But the rate at which the United States is converting grain into ethanol has grown even faster. In 2010, the United States harvested nearly 400 million tons of grain, of which 126 million tons went to ethanol fuel distilleries (up from 16 million tons in 2000). This massive capacity to convert grain into fuel means that the price of grain is now tied to the price of oil. So if oil goes to $150 per barrel or more, the price of grain will follow it upward as it becomes ever more profitable to convert grain into oil substitutes. This is not just a US phenomenon: Brazil, which distils ethanol from sugar cane, ranks second in production after the United States, while the European Union’s goal of getting 10 percent of its transport energy from renewables, mostly bio fuels, by 2020 is also diverting land from food crops.

In this era of tightening world food supplies, the ability to grow food is fast becoming a new form of geopolitical leverage, and countries are scrambling to secure their own parochial interests at the expense of the common good.

The first signs of trouble came in 2007, when farmers began having difficulty keeping up with the growth in global demand for grain. Grain and soybean prices started to climb, tripling by mid-2008. In response, many exporting countries tried to control the rise of domestic food prices by restricting exports. Among them were Russia and Argentina, two leading wheat exporters. Vietnam, the No. 2 rice exporter, banned exports entirely for several months in early 2008. So did several other smaller exporters of grain.

With exporting countries restricting exports in 2007 and 2008, importing countries panicked. No longer able to rely on the market to supply the grain they needed, several countries took the novel step of trying to negotiate long-term grain-supply agreements with exporting countries. The Philippines, for instance, negotiated a three-year agreement with Vietnam for 1.5 million tons of rice per year. A delegation of Yemenis traveled to Australia with a similar goal in mind, but had no luck. In a seller’s market, exporters were reluctant to make long-term commitments.

Fearing they might not be able to buy needed grain from the market, some of the more affluent countries, led by Saudi Arabia, South Korea, and China, took the unusual step in 2008 of buying or leasing land in other countries to grow grain for themselves. Most of these land acquisitions are in Africa, where some governments lease cropland for less than $1 per acre per year. Among the principal destinations were Ethiopia and Sudan, countries where millions of people are being sustained with food from the U.N. World Food Program.

By the end of 2009, hundreds of land acquisition deals had been negotiated, some of them exceeding a million acres. A 2010 World Bank analysis of these “land grabs” reported that a total of nearly 140 million acres were involved—an area that exceeds the cropland devoted to corn and wheat combined in the United States. Such acquisitions also typically involve water rights, meaning that land grabs potentially affect all downstream countries as well.

Many of the land deals have been made in secret, and in most cases, the land involved was already in use by villagers when it was sold or leased. Often those already farming the land were neither consulted about nor even informed of the new arrangements. Not surprising that local hostility towards land grabs has become the rule.

These acquisitions represent a potential investment in agriculture in developing countries of an estimated $50 billion. But it could take many years to realise any substantial production gains. The public infrastructure for modern market-oriented agriculture does not yet exist in most of Africa. In some countries it will take years just to build the roads and ports needed to bring in agricultural inputs such as fertilizer and to export farm products. Beyond that, modern agriculture requires its own infrastructure: machine sheds, grain-drying equipment, silos, fertilizer storage sheds, fuel storage facilities, equipment repair and maintenance services, well-drilling equipment, irrigation pumps, and energy to power the pumps. Overall, development of the land acquired to date appears to be moving very slowly.

So how much will all this expand world food output? We don’t know, but the World Bank analysis indicates that only 37 percent of the projects will be devoted to food crops. Most of the land bought up so far will be used to produce biofuels and other industrial crops.

Even if some of these projects do eventually boost land productivity, who will benefit? If virtually all the inputs—the farm equipment, the fertilizer, the pesticides, and the seeds—are brought in from abroad and if all the output is shipped out of the country, it will contribute little to the host country’s economy.

This rich country-poor country divide could grow even more pronounced—and soon. This January, a new stage in the scramble among importing countries to secure food began to unfold when South Korea, which imports 70 percent of its grain, announced that it was creating a new public-private entity that will be responsible for acquiring part of this grain. With an initial office in Chicago, the plan is to bypass the large international trading firms by buying grain directly from US farmers. As the Koreans acquire their own grain elevators, they may well sign multiyear delivery contracts with farmers, agreeing to buy specified quantities of wheat, corn, or soybeans at a fixed price.

The enterprising Koreans may soon be joined by China, Japan, Saudi Arabia, and other leading importers. Although South Korea’s initial focus is the United States, far and away the world’s largest grain exporter, it may later consider brokering deals with Canada, Australia, Argentina, and other major exporters. This is happening just as China may be on the verge of entering the US. market as a potentially massive importer of grain.

No one knows where this intensifying competition for food supplies will go, but the world seems to be moving away from international cooperation. Food nationalism may help secure food supplies for individual affluent countries, but it does little to enhance world food security. Indeed, the low-income countries that host land grabs or import grain will likely see their food situation deteriorate.

There is no organized effort to ensure the adequacy of world food supplies. Indeed, most international negotiations on agricultural trade until recently focused on access to markets, with the United States, Canada, Australia, and Argentina persistently pressing Europe and Japan to open their highly protected agricultural markets. But in the first decade of this century, access to supplies has emerged as the overriding issue as the world transitions from an era of food surpluses to a new politics of food scarcity.

At issue now is whether the world can go beyond focusing on the symptoms of the deteriorating food situation and instead attack the underlying causes. If we cannot produce higher crop yields with less water and conserve fertile soils, many agricultural areas will cease to be viable. And this goes far beyond farmers.

Reproduced in Primary magazine with permission from Foreign Policy #186 (May/June 2011) ©The Slate Group LLC.