The Geopolitics of Food

The worldwide shortage of water could   become, perhaps, the most serious crisis  facing the world in this century . For an overview on the water problem see

http://www.gather.com/viewArticle.jsp?memberId=63486&articleId=281474977063082

http://www.gather.com/viewArticle.jsp?memberId=63486&articleId=281474977063093 

A serious food shortage in 2009 may bring more attention to this  approaching crisis.
 
 The world is heading for a drop in agricultural production of 20 to 40 percent, depending on the severity and length of the current global droughts. Food producing nations are imposing food export restrictions. Food prices will soar, and, in poor countries with food deficits, millions will starve. 
 
To understand the depth of the food Catastrophe that faces the world this year, consider the graphic below depicting countries by USD value of their agricultural output, as of 2006.

Consider the same graphic with the countries experiencing droughts highlighted.



The countries that make up two thirds of the world's agricultural output are experiencing drought conditions.

http://tinyurl.com/dbr53p

Catastrophic Fall in 2009 Global Food Production
by Eric deCarbonnel

 A lack of credit for farmers limited their ability to buy seeds and fertilizers in 2008/2009 and will limit production around the world. The effects of droughts worldwide will also be amplified by the smaller amount of seeds and fertilizers used to grow crops.   The low prices at the end of 2008 discouraged the planting of new crops in 2009. In Kansas for example, farmers seeded nine million acres, the smallest planting for half a century. Wheat plantings this year are down about 4 million acres across the US and about 1.1 million acres in Canada. So even discounting drought related losses, the US, Canada, and other food producing nations are facing lower agricultural output in 2009.   Europe, the only big agricultural region relatively unaffected by drought, is set for a big drop in food production. Due to the combination of a late plantings, poorer soil conditions, reduced inputs, and light rainfall, Europe's agricultural output is likely to fall by 10 to 15 percent. 

The combined averaged of the ending stock levels of the major trading countries of Australia, Canada, United States, and the European Union have been declining steadily in the last few years:
 
 2002-2005: 47.4 million tons
 2007: 37.6 million tons
 2008: 27.4 million tons
 
 These inventory numbers are dangerously low, especially considering the  possibility that China's reported 60 million tons of grain reserves may not  actually exist. 

The droughts plaguing the world's biggest agricultural regions should end the debate about deflation in 2009. The demand for agricultural commodities is relatively immune to developments in the business cycles (at least compared to that of energy or base metals), and, with a 20 to 40 percent decline in world production, already rising food prices are headed significantly higher. 
 
The price of agricultural commodities needs to  head higher  to prevent even greater food shortages and famine. The price of wheat, corn, soybeans, etc must rise to a level which encourages the planting of every available acre with the best possible fertilizers. Otherwise, if food prices stay at their current levels, production will continue to fall, sentencing millions more to starvation. 

Instead of "competitive currency devaluations", spiking food prices will likely cause competitive currency appreciation in 2009. Foreign exchange reserves exist for just this type of emergency . Central banks around the world will lower domestic food prices by either directly selling off their reserves to appreciate their currencies or by using them to purchase grain on the world market.
 
 Appreciating a currency is the fastest way to control food inflation. A more valuable currency allows a nation to monopolize more global resources (ie: the overvalued dollar allows the US to consume 25% of the world's oil despite having only 4% of the world's population). If China were to selloff its US reserves, its enormous population would start sucking up the world's food supply like the US has been doing with oil. 
 
When a nation appreciates its currency and starts consuming more of the world's resources, it leaves less for everyone else. So when China appreciates its currency, food shortages worldwide will increase and prices everywhere else will increase. As there is nothing that breeds social unrest like soaring food prices, nations around the world, from Russia, to the EU, to Saudi Arabia, to India, will sell off their foreign reserves to appreciate their currencies and reduce the cost of food imports. In response to this, China will sell even more of its reserves and so on. That is competitive currency appreciation. 
 
 With  competitive currency appreciation,  the world's reserve currency, the  dollar, is likely to do very poorly as the central banks liquidate trillions in US holdings to buy food and  strengthen  their currencies. 
 
 Peak water

Lester Brown  has written a  comprehensive  article, "The Geopolitics of Food Scarcity"  describing the relation of failed states to  population growth and water shortage. http://www.spiegel.de/international/world/0,1518,druck-606937,00.html 

Lester R. Brown is president of the Washington, D.C.-based Earth Policy Institute and author of "Plan B 3.0: Mobilizing to Save Civilization."

He says, "The progressive worldwide depletion of aquifers is making further expansion of food production more difficult. After nearly tripling from 94 million hectares in 1950 to 276 million hectares in 2000, the world's irrigated area abruptly stopped growing. For the world's farmers, peak water apparently has arrived....Of all the environmental trends that are shrinking the world's food supplies, the most immediate is water shortages. In a world where 70 percent of all water use is for irrigation, this is no small matter. The drilling of millions of irrigation wells has pushed water withdrawal in many countries beyond recharge rates from rainfall, leading to groundwater mining. As a result, water tables are now falling in countries that contain half the world's people, including the big three grain producers -- China, India, and the United States.

Aquifer depletion poses a particularly serious threat to China and India where between roughly 80 and 60 percent, respectively, of the grain harvest comes from irrigated land. This compares with only 20 percent in the United States. Most aquifers can be replenished. When they are depleted, the pumping is necessarily reduced to the rate of recharge. Fossil aquifers, however, are not replenishable: For these, depletion brings pumping to an end. Farmers who lose their irrigation water can return to lower-yield dryland farming if rainfall permits, but in more arid regions, such as the southwestern United States or the Middle East, it can mean the end of agriculture altogether.

Nowhere is the shrinkage of irrigated agriculture more dramatic than in Saudi Arabia, a country as water-poor as it is oil-rich. After the Arab oil export embargo in the 1970s, the Saudis realized they were vulnerable to a counter embargo on grain. To become self-sufficient in wheat, they developed a heavily subsidized irrigated agriculture based on pumping water from a fossil aquifer over a half-mile below the surface. In early 2008, with the aquifer largely deplet-ed, the Saudis announced that they will phase out wheat production by 2016 -- after being self-sufficient in this staple food for over 20 years. Saudi Arabia will then be importing roughly 14 million metric tons of wheat, rice, corn, and barley for its Canada-sized population of 30 million people. It is the first country to publicly reveal how aquifer depletion will shrink its grain harvest.

Falling water tables are also adversely affecting harvests in many other countries. In China, a groundwater survey revealed that the water table under the North China Plain, an area that produces over half of the country's wheat and a third of its corn, is falling fast. Overpumping has largely depleted the shallow aquifer, forcing well drillers to turn to the region's deep aquifer, which is not replenishable. The aquifer is dropping at a rate of nearly three meters per year. A 2001 World Bank report predicted "catastrophic consequences for future generations" unless water use and supply can quickly be brought back into balance.

As water tables fall and irrigation wells go dry, China's wheat crop, the world's largest, is shrinking. After peaking at 111 million metric tons in 1997, the harvest fell to 103 million metric tons this year, a drop of seven percent within a decade. During the same period, production of rice, a water-guzzling crop, dropped six percent from 127 million to 119 million tons. Already dependent on imports for nearly 70 percent of its soybeans, China may soon be importing massive quantities of grain as well.

In India the margin between food consumption and survival is even more precarious. The country's farmers have drilled 21 million irrigation wells, with the result that water tables are falling in almost every state. In a survey of India's water situation, British author and journalist Fred Pearce reported in August 2004 in New Scientist magazine that "half of India's traditional hand-dug wells and millions of shallower tube wells have already dried up, bringing a spate of suicides among those who rely on them. Electricity blackouts are reaching epidemic proportions in states where half of the electricity is used to pump water from depths of up to a kilometer."