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Why are tortillas now tied to oil prices?
Written by: Tim Large
A protester holds up an ear of corn during a demonstration in Mexico City. REUTERS/Henry Romero
Global food prices are spiralling skyward. From Cameroon to Mexico, riots have erupted as staples like rice and corn flour become unaffordable. In Pakistan, wheat flour prices have doubled. World soybean prices are at record highs. The U.N. World Food Organisation (WFP) has warned of a "new hunger" spreading across the globe, plunging poorer countries into unrest and violence. The planet has never seen anything like this. Experts call it the worst food price inflation in history. What's going on here? Why is global food security suddenly on a knife edge? Earlier this month, WFP chief Josette Sheeran described a "perfect storm for the world's hungry" caused by low food stocks and high food and oil prices. The first part - low food stocks - makes intuitive sense. Among other factors, global population growth means more mouths to feed and less land to grow crops on. Falling water tables, particularly in China and India, have also tightened grain supply. But what is the link between food and oil prices? We've heard a lot about the biofuels boom and its impact on food security. But what is the magic mechanism that shackles the price of tortillas to the fortunes of the energy market? I asked a leading environmental economist, Lester Brown, to explain. Brown is president of the Earth Policy Institute think tank in Washington and has been tracking agricultural commodity trends for more than half a century. He said to understand today's food price inflation, you need to rewind to 1978. That was the year the United States first began its programme to convert grain into ethanol, which can be used to power cars. It seemed like a fine idea at the time, given the 1970s oil shock that had highlighted U.S. dependence on Middle Eastern exports. Things chugged along harmlessly until 2005 when Hurricane Katrina interrupted oil production, imports and refining in the Gulf of Mexico. Fuel prices shot up. Corn prices, however, were still relatively cheap at around $2 a bushel. Suddenly, the market price of ethanol was about double the cost of producing it. That's a juicy profit margin - and billions of dollars began to flow into biofuels. About 18 percent of the U.S. grain harvest now goes to make ethanol. Brown forecasts that by the end of the year the figure could be more like 28 percent. "What has happened is that we have basically developed a very substantial capacity for converting grain into oil - or ethanol," he said. "What this means is that the price of grain is now tied to the price of oil because if the food value of the commodity is less than the fuel value, then the market will move that commodity into the energy economy. "We used to have a food economy and an energy economy and they were more or less separate. Now they're beginning to fuse, and in this new world where the price of grain is tied to the price of oil, if the price of oil goes up, so grain goes up. "And that is a threat to political stability and security in the world that I don't think we've come close to grasping yet... "What we now have is a situation where the 860 million people who own cars are competing with the 2 billion poorest people in the world for the same grain supply. This is a new not only political and economic issue but also a moral issue."
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7 responses to “Why are tortillas now tied to oil prices?”
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Tim Large has been AlertNet's deputy editor since 2003. Prior to that, he was a correspondent with Reuters in Tokyo, a staff writer on a major Japanese daily and news editor of a popular science website. He has written widely on politics, economics, social issues and the arts. He is also a passionate photographer.
14 Mar 2008 10:09:20 GMT
I think this issue is absolutely huge, and we haven't yet seen how it could affect stability.
From the protests there have been already, it seems to me that people are more willing to take to the streets - and possibly more - when their food is threatened than when their neighbours are being disappeared in the night. Understandably, of course! So I do wonder if we could see some radical upheaval in unpredictable places when things start pinching. The trouble is that it's not like you could kick out a government and cut food prices, is it, since it's all so globally linked?14 Mar 2008 13:02:34 GMT
I think it is totally insane that the quest for a "greener" world is pushing the poor into starvation. Not only will the poor be severely affected, the lower middle classes will struggle too has food prices multiply.
16 Mar 2008 18:58:16 GMT
Surely this is made worse by "globalisation". As grain prices rise in one place, the so-called market forces push producers to export grain to where they can get the highest price. (and not only where grain is an oil substitute.)
By destabilising local production, and in the case of Monsanto, quadrupling the cost of seed grain, the "cushion" that allowed millions of poor access to food, has been broken in favour of exploitation, by the rich, for the rich. It is time we went back to the ideal of food self-sufficiency for each country, as after WWII21 Mar 2008 09:03:19 GMT
It's my understanding that in the US the government is subsidizing the production of ethanol. And without that artificial support, there would be no profit.
03 Apr 2008 15:50:34 GMT
Y is the price of oil so high? Its incredible that oil companies made billions in profit last year while billions in Africa and around the world go hungry. This massive rush towards the purchase of grain is just one more ill effect of globalisation and another opportunity for big shot businessmen to enrich themselves at the expense of the poor. When will this cycle stop?
Most African countries are higly agricultural and depend on agricultural products for sustainance. Therefore, their governments should place a cap on the amount of grain that can be exported no matter how profitable. If the Americans want a substitute for fuel, they should grow their own corn. On second thoughts the US should adopt a more tolerant and friendly policy towards the Middle East. After all as we say in Africa "you cannot bite the fingers that feed you" The US cannot and should not bully the countries it relies on for its most important natural resources.25 Apr 2008 09:27:50 GMT
Tim, you failed to mentioned the disruption that the sale of cheap corn created in the Mexican economy of the 1980's; it created the conditions for the huge immigration waves into the United States, since home-grown corn was(and still is) more expensive than cheaper US corn, displacing millions of poor and medium size farmers, and forcing them to flee their land to look for work.
Ethanol is not an enviromental-friendly solution to global warming; when you factor in the use of the land, fertilizers, water, energy for harvesting and convertion to fuel. It is a bonanza for big and rich corn growers. I think the time has come for all of us, specially the ones that have more, to seriously consider the consequences of how, when and with whom we do business, because ultimately, we are in this world together.08 May 2008 12:03:11 GMT
The dogs bark and the SUV's roll on.