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The Drought and the Coming Food Price Bubble

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TIm A. Wise: US food reserves at a historic low as biofuels, climate change and speculation exacerbate food crisis.


PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore.

The American Midwest and South is suffering under the hottest weather in the history of recorded weather in the United States. Twenty-twelve is so far the hottest years ever recorded by the National Oceanic and Atmospheric Administration, whose records date back to 1895. The United States government has said we should expect higher food prices in 2013 as a result of the most severe drought in the American Midwest in the last 50 years and a little more.

Now joining us to talk about all of this and its impact on American and global food prices is Tim Wise. Tim is the policy research director at Tufts University Global Development and Environment Institute. He’s the coauthor of the policy report Resolving the Global Food Crisis: Assessing Global Policy Reforms Since July 2007. Thanks for joining us, Tim.


JAY: So the chairman of the board of Nestlé’s said something which I think could have been attributed to you, Tim. Here’s a quote from him. And when he’s speaking to the Council on Foreign Relations in New York, he says, “Today, 35 percent of U.S. corn goes into biofuel. From an environmental point of view this is nonsense, but more so when we are running out of food in the rest of the world. It’s absolutely immoral to push hundreds of millions of people into hunger and into extreme poverty because of such a policy. So I think I insist no food for fuel,” he says. And as I say, that’s something you could have said, Tim. But a lot of people are suggesting in the wake of this report of the drought and the coming food shortage that it’s not just because of the drought, there’s other factors at play here. So what’s your take on this?

WISE: Well, that’s certainly true. I mean, we warned earlier this year, when we completed our survey on the responses to global food crisis, which we’re now five years into, right, this current projected spike in food prices is—will be the third in five years. So the question is—well, our question in that report was: what have we learned from the first one? And the answer was: not enough, that the underlying factors that have provoked the so-called food crisis are still there—climate change increasing the weather patterns, the severe weather events, and affecting global agricultural production; biofuel expansion, which continues apace; the lack of publicly held food reserves; and financial speculation, which is still largely unregulated.

JAY: And there’s something you could add to that, too, is that the big commodity traders are on a buying binge. Companies like Glencore and others are just buying up the world’s food supply. The latest buy, Glencore bought a massive amount of Canadian wheat-producing land and producers. All over the globe there’s concentration of ownership of commodities, speculation, and the other factors you mentioned. But let’s dig into some of this.

First of all, how much a factor is simply the drought and it’s unavoidable? Because the Obama administration, in response to that quote I read from the Nestlé chairman, said they found his comments irritating, apparently, and that American food producers can produce enough food for export, for consumption, and can deal with these shortages.

WISE: Well, I mean, I think what is certainly true is that this drought is going to have a severe impact on the amount of U.S. corn and soybeans in particular that we produce. The latest estimates dropped projections by 2 billion bushels, which is about 15 percent. So you’re talking about a very significant projected drop in U.S. corn production. That will also be true of soy. And that will have an impact on global corn and soy prices because we are one of the world’s largest producers and largest exporters of both. So it has a severe and direct impact on global markets. There’s also a spillover effect onto other markets, like wheat and rice, which are not in as severe a situation in terms of stock levels.

JAY: Now, I’m assuming that scientists can’t directly connect this heat wave and drought to global warming. The normal argument you get from scientists is that it could be connected, but you do have normal cyclical up and downs in the heat, and this is likely part of the global warming trend, but each specific event can’t be directly connected. But one way or the other, we know there’s going to be massive heat waves and droughts. So what should public policy look like in relation to this?

WISE: Well, public policy should absolutely address climate change. And I think the thing that people, that scientists have documented fairly well and predicted is a rise in the probability of severe weather events. And so we’re seeing more severe weather events. That’s not people’s imagination or the news media hyping it. There are more severe weather events—they’re happening more frequently and they are more severe. So that is all part of a pattern predicted by climate scientists. And one recent study, in fact, estimated that the likelihood of a drought like this in the United States is about 60 times more probable than it would’ve been 50 years ago, based on climate models.

So I think that it really would be a mistake to dismiss this as that there’s no way to connect it to the climate crisis. It’s absolutely an indicator of the climate problem, as have been the floods and severe rains in England, in China, and elsewhere.

JAY: Okay. So let’s take that as true and the need for dealing with the climate crisis is a whole set of policies, which we’ve discussed and we can discuss in a separate occasion. But even if everything was enacted tomorrow, which we know it’s nowhere near, in terms of the paralysis in U.S. politics about dealing with climate change policy, but even if it was—everything one wanted was passed tomorrow, we’re still talking many years of these kind of severe climate and heat situations and the effect on the world’s food supply. So let’s go through some of those issues.

One of the things, in fact, the Nestlé chairman calls for is simply an end to biofuels, growing corn for biofuels. What do you make of that? And what’s the opposition to that, given that we’re probably talking millions of people starving and many going hungry because of what’s going to be coming in terms of the next food bubble?

WISE: No, I think that’s absolutely critical. I mean, we pointed—in our food crisis report we pointed—the two most urgent measures that government have the ability to take would be to reduce biofuel expansion and the incentives for biofuel expansion and to rein in financial speculation. Corn in particular and corn for ethanol is particularly damaging, obviously, because corn is a food crop and a feed crop, and so the rise in demand for corn directly affects the corn prices and affects availability of corn for food uses. Biofuels currently are consuming about 40 percent of U.S. corn. And it’s driven at this point by the Renewable Fuel Standard mandate, which calls for 13.2 billion gallons of ethanol from corn as part of our commitment to increase the amount of renewable fuels in our fuel supply. That, I think, is an untenable policy in light of the current pressures on corn supplies.

JAY: Now, one can understand why the Nestlé chairman, at least from an economic point of view, is interested in this, because if the price of food goes up, he’s going to sell less Nestlé products. But both from the leadership of the Democratic Party and certainly not the Republican Party there seems to be no engagement in this issue of less corn for biofuel. And as I said, the Obama administration actually pushed back against the Nestlé chairman’s comments.

WISE: No, I think that’s right. And as you said, the economic interests aligned against such a move or a more moderate move, which is really the one, I think, that’s actively on the table in Congress—there’s a congressional letter circulating, there’s a bill on the table with a significant number of signers in the U.S. Congress that calls for more flexibility in the renewable fuel mandate, so that when stocks are low, when there are pressures on supplies, that the mandate for renewable fuel use be relaxed. And there’s a proposal—in fact, The New York Times had an op-ed calling for a two-year moratorium on the renewable fuel mandate, not an abandonment of it. And that kind of thing could make a huge difference. And that has significant support from a significant number of people in Congress. But, as you say, the interests aligned against it are very powerful.

JAY: And on the speculation side, we’ve seen that the Commodity Futures Trading Commission and the other laws and regulation have been so weakened that were supposed to come out of Dodd–Frank to deal with the commodity tradings, and position limits particularly, was severely weakened. This is the idea that no one speculative player should be able to have too big a position in any particular commodity, like corn or something else. We’ve talked quite a bit about this, and we’ll put some of the other interviews down here. But talk a little bit more about the food reserves and the lack thereof of U.S. food reserves.

WISE: Well, it’s—I mean, that was one of the other strong recommendations we made in our policy report is that food reserves have been at all-time lows. I mean, prices are spiking because corn stocks are at 15 percent of use, and that’s as low as they were before the food price spike in 2007 and 2008. There’ve been increasing numbers of plantings, more acreage planted of corn than there has been ever before. Harvests were expected—before the drought hit, harvests were expected to hit record levels, and they may still actually surpass record levels, but with the increased demand for biofuels and low stocks-to-use ratios, it leaves the world vulnerable to these kinds of price spikes. And there’s been a decided lack of interest on the part of the international community in endorsing the move toward publicly held food reserves, which I think in light of this current crisis is going to be seen as absolutely foolish five years into this food crisis.

JAY: And especially when they’re already predicting a year out that there is some time to build up these reserves before the worst of it hits, both in the U.S. and in other countries, for that matter. I mean, we’re going to be seeing the kind of food riots in 2013-2014 that we were seeing a year or two ago.

WISE: That’s—it’s very possible. The most food import dependent countries are really going to be up against it this time. And they’re already pressed to the breaking point, a lot of them, because, again, this isn’t just a one-off event, this is the third price spike in five years, and they’ve seen dramatic increases in their food import bills. That puts pressure on all the rest of the public resources in those countries, which don’t have a lot to work with to start with. So I think it could be very severe. And publicly held stocks of basic foods has historically been one of the main ways that one deals with that.

The good news is that a lot of countries have not waited for the international community to endorse such policies, and so many more countries are actively pursuing their own reserve policies. There are even some regional initiatives that are promising.

JAY: But not in a significant way within the United States.

WISE: By the United States, absolutely. In fact, our reserves are at next to zero. Commodity holdings are—our pantry is essentially bare.

JAY: Now, there does seem to be, as I mentioned with the quote from the Nestlé chairman, you can say, a difference in interest amongst different sections of business and agribusiness. You can understand why Nestlé doesn’t want prices to get too high. But that seems to be a very minority voice, both if it’s looking at finance or the majority of agribusiness. They’re not pushing for a solution to this.

WISE: I think that’s—well, I think there are a range of interests. And it’s interesting, and not surprising in some ways, that you find a Nestlé or a Smithfield Foods, for example, lined up calling for an end to the biofuels mandates and a change in biofuels policies. I mean, this—there clearly are a lot of powerful interests that are deeply affected in negative ways by the current policies, too. That may mean that there is some hope for a change in some of these policies, such as biofuels policies.

JAY: Well, if you look at the U.S. elections from either President Obama or Mitt Romney, do we hear anything about this? And have you heard anything that sounds like a solution?

WISE: No, I haven’t. And I think only now with the drought and with the drought being so severe are we likely to hear much of anything from the campaigns. But it’ll be interesting to see what we hear from the campaigns.

I would hope to hear from the campaigns that at least there is some willingness to consider the proposals for a flexible mandate on biofuels. It’s a very reasonable proposal. It’s in no way an abandonment of a commitment to diversify our fuel supplies, to look for more renewable fuels in the long run, which is a laudable goal, etc., but a recognition that doing so in the way we’ve been doing it, dependent on corn as the primary feedstock for those biofuels, is in a time of shortages a very misguided policy.

JAY: And I guess the other thing they could do is build up the food reserves, but that might tend to keep prices down a bit, and, of course, some of your biggest campaign contributors may not like that.

WISE: Well, the hardest time to build up food reserves are when prices have spiked. The point of food reserves is that you buy up—you build them when prices are relatively low, and then your actions of buying those stocks help keep prices from plummeting. So that’s how you moderate the volatility that happens in food products. Then when you get a spike, you can release some of those stocks, and that moderates the price spikes. That’s the kind of policy that we haven’t followed in the United States for probably 15 years, maybe 20.

JAY: Alright. Thanks for joining us, Tim.

WISE: My pleasure.

JAY: And thanks for joining us on The Real News Network. And don’t forget there’s a “Donate” button over here, because if you don’t click on that, we can’t do this.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

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