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Authoritarian governments stockpiling food

In the Telegraph:

Commodities traders have warned they are seeing the first signs of panic buying from states concerned about the political implications of rising prices for staple crops.

However, the tactic risks simply further pushing up prices, analysts have warned, pushing a spiral of food inflation.


Governments in Asia, the Middle East and North Africa have recently made large food purchases on the open market in the wake of unrest in Tunisia which deposed president Zine al-Abidine Ben Ali.


Resentment at food shortages and high prices, as well as repression and corruption, drove the popular uprising which swept away his government.


Youths reportedly chanted "bring us sugar!" in the demonstrations which toppled his regime.
 

DominiConnor

Quant Headhunter
The sugar thing could get worse since the large sugar producing area of Australia was hit very badly yesterday by a tropical storm, they reckon around $500MM of the crop was lost.

I think the dictatorships are behaving rationally, the Egyptian situation was partly sparked by food price rises. Also, food is a good way of retaining state power, areas or individuals that are loyal to the regime get fed, those that aren't...

Also there exists the opportunity for the regime to make good money with a black market in food.

However, it may not be enough. Everything I read points to a significant and sustained increase in food prices. Before the recession wheat was already going up hard as places like China and India both consumed more food and moved from eating less rice to more wheat and beef, which is often reared on wheat products.
Fires in Russia, heavy rains on wheat in Oz and dodgy rains in SE Asia mean that supply of most food is going down as demand goes up.
Fishing continues a long term, irreparable decline due to over-exploitation.
An increasing % of fish is now reared in farms, but most of the fish food is some form of grain based product, and since (roughly) 10 times as much food is fed to an animal as you get out in meat, that actually puts yet more pressure on the system.

Looking at the rest of this year and 2012, one has to assume a major crop will go badly in some country, because in most years that happens somewhere.

Also, on top of all that farming is an energy intensive business, and that's not just machinery.
Many crops need heating , a few even need cooling, water pumping can be heavy duty, fertiliser consumes serious energy in it's production, the output needs to be moved, again often with cooling, and of course some food is shipped by air, which is very sensitive to oil prices.
So a spike in oil prices is going to affect food supply and price.

On top of all that, the % of earnings that westerners spend directly on food is very small. If you subtract restaurants and other value-add to food, the food material component of spending is low enough that many don't even notice if it goes up 5%. Also of course, you need to eat, if porn or cars suddenly jumped in price, some people would simply stop buying any, and others would cut back hard, that doesn't apply as much to food.

That means western demand for food doesn't go down all that much when price increases, and in poor countries there is little scope to eat less either.

So the price increase will only reduce demand a little, and mostly for premium items like airfreighted fruit which have little effect on global food supply.

Hunger doesn't kill quickly, and in most cases there won't be an absence of food, but high prices, and shortages. Which means people going hungry for months on end, but not actually dying in very large numbers.
That means millions of hungry and therefore angry people. Hard to see that as good.

Also there is the lesson of India...
Under British rule, and previously under local Kings/Rajahs/Thugs famines were depressingly regular, yet after independence, and in spite of a criminally incompetent government, India has not had one famine since, when it might have expected 4 or 5 big ones in that period. Pakistan, which has been run even worse than India doesn't suffer from famines anything like as badly as equivalent Moslem states which aren't democracies.

Democracies don't have famines,

Some may get a big hungry, and there may even be some deaths from poor nutrition, but piles of bodies in public places lose you votes big time.

Thus my call is that food-based social unrest will not be confined to the worst dictatorships but become "the new normal" in most countries whose people aren't smart enough to be able to build a democracy. It's not hard chaps, the manuals are on the Internet...

Hoarding will of course make this worse.

Need I mention that commodity desks are now recruiting after a couple of quite bad years ?
 
However, it may not be enough. Everything I read points to a significant and sustained increase in food prices.

If memory serves, a one degree (celsius) rise in global temperature means a ten per cent decline in food production. We are seeing global temperature going up and also, as a concomitant, weather becoming more volatile. The kind of phenomena (floods, for example) that occurred once every twenty or fifty years are occuring every three or four years now. For this reason alone -- regardless of political setup -- there will be more social disruption. The global food trading system will break down. Already governments like Russia and India are prohibiting exports of certain food items. That governments are stockiling food indicates they are keenly aware of how incendiary food shortages and food price hikes can be.
 
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