Food price spikes linked to Middle East revolts
Comment from Alan Bullion, Head of Analyst Team, Informa Agra
Two new US studies suggest that there is a specific link between rising food prices and protests, as seen recently in the Middle East and North Africa (MENA).
According to researchers from the New England Complex Systems Institute (NECSI), the tipping point for riots is 210 on the UN Food and Agriculture Organisation (FAO) monthly price index, with the figure currently standing at 234 for June 2011.
World food commodity prices began increasing in 2002, reversing a 20-year downward trend. This coincided with a population boom, and rising demand for staple foodstuffs such as wheat, particularly in developing countries.
According to the FAO, prices soared by 51% on average between January 2007 and March 2008, followed by a further 40% price surge between January 2011 and February 2011. Even though the recent spikes peaked in February, both the FAO and World Bank statistics show that over the past year crop prices have risen significantly, and are likely to remain high well into 2012, given tight global supplies.
The NESCI team argues that current underlying food price trends mean that continued instability is likely over the next two years. Although other contributory factors are involved, the timing of violent protests in Tunisia and Egypt and elsewhere in 2011, and earlier unrest in 2008, coincided with significant peaks in global food prices, especially wheat, which is a staple ingredient for bread in the region.
These findings are reinforced by a second study from Marc Bellemare, a professor at Duke University. However he concludes that governments can have specific influence over the political response to price volatility, whether through maintaining basic food subsidies, as in India, or boosting food security through increased crop yields, in order to contain unrest.
For example, he cites the previous food riots seen in Egypt in January 1977 after the International Monetary Fund imposed strict structural adjustment policies. Before being toppled, Tunisian ruler Zine Ben Ali promised to reduce sugar, milk, and bread prices, but this was too little too late.
In contrast, leaders in neighbouring Algeria and Morocco helped to stave off rebellion by shoring up vital grain supplies in time, although Algeria will need to import more than last years 5.232 million tonnes of grains, due to drought.
Wheat imports
At around 216 kilos per head on average in 2010, the countries of Algeria, Egypt, Libya, Morocco and Tunisia have the highest wheat consumption in the world. Wheat consumption per capita has climbed almost 20% over the past decade, pushing up imports on average by 3% per annum.
MENA countries are all highly reliant on wheat imports. Last year, Egypt alone imported 9.8 million tonnes of wheat, while producing a record 8.6mt of wheat. Other countries in the region produced a further 9mt, making a total of 17.6mt.
Moroccan wheat production is more modest, averaging 4.6mt over the past five years, around 60% of domestic demand. Both Algeria and Tunisia are more dependent on imports, which domestic production fulfilling around 28% of demand for both countries.
Libya produces on average 125,000 tonnes of wheat a year, while consuming around 1.9mt. It is almost entirely dependent on imports, due to its large per capita bread consumption of almost 190 kilos. It is currently planning to import some 500,000 tonnes of wheat and 400,000t of flour over the next two to three months, mainly from Russia, Ukraine, France and Egypt. However, there are issues over port security, logistics and payments, although Maersk Line is now shipping grains to Benghazi.
The Middle East contains two dominant wheat producers in Turkey and Iran, accounting for 80% of total output. In total, the region produced 38.1mt of wheat in 2010, accounting for 70% of total consumption, but outside of Turkey and Iran, production was just 6.7mt, meeting just 30% of local demand.
Due to their limited extra production capacity and population growth, it is in these other Middle Eastern countries where the US sees wheat demand rising most sharply over the next four decades.
North African wheat imports are expected to more than double from 22.3 million tonnes in 2010 to 51.4mt in 2050, due to population growing 44% from 170m to 245m over the same period, according to US Wheat Associates. Similarly, population growth in the Middle Eastern region is seen rising to 437 million by 2050, a 54% increase from 284m in 2010.
This means that governments need to diversify their grain sources, build up stocks as in Saudi Arabia, improve port and storage facilities, adopt hedging, and perhaps most importantly, better conserve and share scarce regional water resources, which the World Bank forecasts will fall by 50% over the next four decades.
Dr Alan Bullion is head of the Informa Agra Analysis Team and will be speaking on this subject at the Informa Middle East Grains Conference in Istanbul from 26-27 September 2011.
Contact Alan Bullion for further details on +44 207 066 1610 and alan.bullion@informa.com