Feed My People

Tuesday's World Events   —   Posted on April 29, 2008

(by Mindy Belz, WorldMag.com) – A dramatic thing happened at the corner of 4th Street and 4th Avenue South in Minneapolis in February. Inside the cavernous Arts and Crafts trading room of the oldest grain exchange in the world, hard red spring wheat hit its highest price in history. For an unprecedented five straight days at the 10-story building that has housed the grain exchange since 1907, the wheat price rose the maximum allowed each day.

In the grain pit, where “open outcry” trading accounts for the bulk of transactions-over 35 years after NASDAQ introduced electronic trading-wheat traders buy and sell futures contracts on behalf of farmers, elevator operators, and food processors like Archer Daniels Midland. Hard red spring wheat at 15 percent has the highest protein content of any wheat and is sought after for breads, muffins, bagels, pizza crust, and other flour products the world over.

Minneapolis is the principal exchange for hard red, handling up to a million bushels in trades a day. During the last week of February the commodity traded as high as $25 a bushel. Normally it trades at $3 to $7 a bushel.

But no one is remembering normal these days. From the pizzerias of Brooklyn to the street vendors of Cairo and the schoolrooms of south Sudan, February’s record prices in wheat and subsequent high prices of other commodities are still reverberating outward, provoking everything from localized customer revolts to outright street clashes like those in Haiti last month.

“It was the perfect storm,” said Rita Maloney, manager of marketing, communications, and media relations for the Minneapolis exchange. “A lot of factors came together-it’s not as easy as saying it was ethanol production or weather issues or such.”

Minneapolis pit traders conditioned to the rough-and-tumble of face-to-face trading, the stomping of the hardwood floors, the shouting and flailing hands and the occasional cursing, were not accustomed to the run-up: Some traders took in six figures a day during the February spike in wheat. And while record-high prices have fallen off-wheat delivered in March fell to $20 a bushel, still up from about $5 a bushel a year ago-the exchange has had “week after week” of historically high trading volume, Maloney told WORLD. The number of wheat contracts traded at the exchange is up 29 percent compared to 2007.

But for consumers the high prices are a bitter pill. New Yorkers complain that pizza prices have increased $.50-$1.00 per slice. Domenico DeMarco, owner of Di Fara Pizza in Brooklyn, where pizza sold for 20 cents a slice when he opened in 1964, is unapologetic about raising the price of one of his slices from $3 to $4 a few months ago. The rising cost of fresh ingredients, including flour, forced him to, he told the Associated Press.

In Boston, where chain bakery Au Bon Pain is headquartered, senior vice president of marketing Ed Frechette called the price increases “dramatic.” With locations in 18 states and the District of Columbia and overseas, Frechette told WORLD: “We tend to buy long-term contracts for our wheat so we have not been hit quite as hard on our items as some other companies. We have taken the price up on a few of our baked items and sandwiches but we are trying not to pass on the costs to our guests if possible.”

What’s behind the suborbital prices? One thing is the age-old maxim of supply and demand: U.S. wheat supplies are at a 60-year low, according to the U.S. agriculture department, with global stocks at a 30-year low.

The reasons behind the shortage are varied: In the United States more farmers are putting their acreage into corn production for ethanol; drought and other weather-related issues in the United States and abroad have been a factor, as have political upheaval in former breadbaskets like Zimbabwe, and trade restrictions in high-producing states like Ukraine and Kazakhstan. What that means is that the United States may actually import wheat from Canada this year to meet its own demands. And that in turn siphons off the stockpile for purchasers with growing demand, like China and India.

“We are in uncharted territory,” said London trader James Bower. “The market is desperately trying to tell global producers that we need more acres for wheat production.”

Analysts hope that upcoming harvests in India, Mexico, and Turkey will relieve wheat shortages. But wheat is not the only commodity on an upward trajectory. Rice, a staple food for nearly half the world’s population, rose dramatically in April: The price per metric ton of Thai medium-quality rice, the global benchmark, rose from $760 to $880 in one week. According to the World Bank, global food prices have increased by 83 percent in the last three years.

The increases are forcing middle-class Americans to dig further into their pockets to buy a loaf of bread. In poor countries sudden price hikes are forcing those who live on less than a dollar a day-the “bottom billion”-to go without.

Investors and traders have been eyeing the food trends for months, but public officials found themselves kicked into the new food reality in April when Haitians rioted and attacked UN troops over food shortages. Hungry protesters stormed the presidential palace April 8 to demand the resignation of President René Préval over food prices that have risen by 40 percent in less than a year.

The protesters confronted UN peacekeepers, forcing them to fire rubber bullets and tear gas on crowds gathered outside the palace. Some ate grass in front of soldiers and cameras to demonstrate their desperation. Elsewhere other Haitians have come to depend on a traditional stomach-filler known as “mud cookies” or “clay cakes”-a health hazard popularized as a snack and sold on the streets, made from a mixture of dirt, vegetable oil, and salt. Haiti is one of many poor countries that imports nearly all of its food, including 80 percent of its rice.

Before the street violence eased, Préval announced a price cut on rice and dismissed his prime minister on April 12. The following day a UN police officer bringing food to his unit was pulled from a car and killed execution style in Port-au-Prince. Five others also were killed in the unrest.

At a weekend conference World Bank president Robert Zoellick warned that the crisis could mean “seven lost years” for those fighting poverty: “While many are worrying about filling their gas tanks, many others around the world are struggling to fill their stomachs, and it’s getting more and more difficult every day,” Zoellick said. On April 14, President George Bush ordered that $200 million in emergency food aid be made available to meet “unanticipated food aid needs in Africa and elsewhere.”

But price increases are hitting hardest where reliance on government-supported food is highest. In Egypt, where 85 percent of bread (or 230 million loaves a day) is subsidized, rising prices are forcing more people to depend on government bread and led to a nationwide strike April 6. At least seven people in Cairo have been killed in bread-line brawls.

In sub-Saharan Africa UN food distribution officials have in the past ladled out grain using a red plastic cup for the day’s individual ration. Six family members? Six cups full. Now this same ration cup is filled only two-thirds full, they say. The UN’s World Food Program has admitted that, despite plans to feed 70 million people this year, it now faces a $500 million budget shortfall.

In south Sudan that means a school lunch program that feeds 2,000 students is in jeopardy. Three schools operated by Servant’s Heart Relief are all that exist to serve a total population of over half a million spread over 15,000 square miles. Many students walk more than five miles each way to school. “A school lunch is important, both because many students don’t have any food at home to feed them and because of the long distances,” said Servant’s Heart director Dennis Bennett. The UN’s World Food Program in the past delivered food by airplane to each school in the remote Eastern Upper Nile province.

This year, due to the rising cost of food globally and UN cutbacks, the World Food Program delivered food only to one location-more than 50 miles away from any of the schools. Now locals and Servant’s Heart must raise money for transport of over 50 metric tons through 50 miles of jungle.

“This expedient probably saved WFP almost 50 percent of the cost of the food, but the cost did not go away,” said Bennett. “If we can’t raise the money and get the food to the schools, many of the students will have to stop attending.”

For aid groups like Servant’s Heart, the crisis is reviving old debates about how best to feed the poor without institutionalizing their dependency. World Vision International president Dean Hirsch told an international food aid conference April 15 that what works best is what works. “Far more important for World Vision than the method of food aid is that vulnerable children get the food they need. Our focus, therefore, is on outcomes: that no child should go hungry, be malnourished, underweight or stunted,” he told attendees at a conference sponsored by the U.S. government in Kansas City, Mo.

Hirsch said that his agency is testing the various food-aid models in a pilot project in Lesotho in South Africa. “In some communities we are distributing exclusively cash to the beneficiaries. In other communities we are distributing a combination of cash and food (50 percent cash and 50 percent food), and in some other communities we are distributing only food.”

World Vision has similar pilot projects in Pakistan and Zambia. “These pilot programs have been launched prior to the major increases in food costs, in order to test and research potential ‘best practices’ before expanding those approaches,” said Walter Middleton, vice president for World Vision International’s food programming and management group.

Aid groups wrestle with whether it is best simply to give hungry people food or to allow them to earn money to “buy” it. For World Vision, whose food aid programs total $340 million or about 15 percent of its overall budget, testing what kind of short-term relief works best is part of a two-pronged approach: “To respond to the short-term crisis caused by the current increases in food costs, we are calling for an immediate increase in resources, both public and private. People are having problems feeding their families and need immediate help,” Middleton told WORLD.

Long term, the aid group believes, wealthy countries have an obligation to assist poor countries “to build stable food supplies and for them to benefit economically from increases in commodity prices by investing in sustainable agriculture,” Middleton said. “It is a tragedy that many small farmers around the world are not benefiting from the increased return from selling crops at higher prices.”

The new fight to feed the world’s poor may have hit suddenly but will not go away overnight. Wheat analyst Austin Damiani of Minneapolis-based Frontier Futures told WORLD: “General inflation and the weakness in the U.S. dollar are exacerbating prices. When the dollar goes down, then investors buy commodities. If the dollar rallies, then you will see investors with money in commodities put money back into government securities, into cash.” That could help bring food prices down.

When finance ministers and central bank heads of the seven leading industrialized nations met in April, analysts like Damiani hoped they would take action to support the sagging U.S. dollar. But that did not happen, Damiani noted. Instead they emphasized emergency measures like shipping stockpiles of grain and underwriting the cost of increasingly expensive food donations to poor countries. In the absence of a change in monetary policy, are U.S. and other consumers looking at long-term food inflation? Damiani said, “Yes, I think so.”

Copyright ©2008 WORLD Magazine, May 3, 2008 issue.  Reprinted here April 29th with permission from World Magazine. Visit the website at www.WorldMag.com.

Questions

1. a) Why is hard red spring wheat such a popular type of wheat worldwide?
b) Where is most of the hard red sold?
c) Compare the normal price of wheat to its February price.

2. Wheat prices are high because supply in the U.S. and worldwide is at an all-time low. List the causes that have led to the wheat shortage.

3. a) What might the U.S. do to offset the wheat shortage here?
b) How could this solution affect China and India, countries that have an increasing demand for wheat?

4. a) How has the rising cost of wheat affected Americans? (see paragraphs 7-8, 13)
b) Ask a parent how the rising cost of wheat has directly affected your family.

5. How are increased food prices affecting people in poor countries like Haiti, Egypt and Sudan? (see paragraphs 13-15, 18-19)

6. What is the U.S. government doing to aid poor countries in Africa and elsewhere?

7. From paragraph 26: “Aid groups wrestle with whether it is best simply to give hungry people food or to allow them to earn money to “buy” it.”
What do you think? Explain your answer.


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Resources

Visit the World Vision website at wvi.org.

Read an interview CNN commentator Glenn Beck had with Iain Murray of Competitive Enterprise Institute on rising food prices here.
NOTE: This transcript is in PDF format.

Read “The Facts About Ethanol” at factsaboutethanol.org.

Visit the World Bank’s webpage on “High Food Prices” here.