Blog about the upcoming food shortage crisis

Everybody throws stones at the prophet, but when the crisis comes they yell: “Why nobody warned us?”

Guardians Thailand correspondent Ian MacKinnon writes about an amazing new feature of the upcoming shortage – rice rustling. While the shortage was taking over the world, rice was the commodity least affected. However the price of the ton of rice has gone from $400 mln to $760. Thai farmers now have to protect their crop with the guns against the thieves.

Governments in Asia taking all the measures to protect their 2.5 bn people from hunger and avoid food riots. Exports have been banned or diminished in order to keep food in the country. More production was encouraged, however the hopes are fading, as India has failed to become the rice exporter.

“The real danger with rising rice prices is that the ‘working poor’ will simply be pushed into the category of ‘poor’ who will look to us to feed them,” said Paul Risley, spokesman for WFP Asia. “There are hundreds of millions living at, or just below, the poverty line of $1-a-day, spending 70% of their day-labour wages on food.

As Amit Battacharaya writes from the New Delhi India has to focus on the internal food production with Thailand and Vietnam failing to provide much needed food imports. Era of the cheap food is over with the credit crunch so it is time to tighten the belts, author concludes.

Daily Reckoning has written a huge spread article to lead the reader to conclusion that the restriction of the rice exports will damage the markets and lead to the global inflation. However seriously it sounds, it is hard to agree with the point made by the magazine.

What causes inflation? Essentially it is a reciprocal process with each member of the economic system being responsible. Product producer sets a higher price to get more profit, retailer adds his markup and passes it over to the customer. Customer now need more money in order to buy other products, so he demands a higher salary for the same amount of labour. Higher salary has to be paid for by the clients of the company, so again producer has to increase the product price. This is an oversimplified example, which however illustrates the point.

Inflation can be tackled by increasing productivity – if you want to get more, you have to produce more. In the economical system you need money to start production, as you have to buy raw matherials, pay salaries and have other expenses. By paying salaries you create new customers for the market, as people have to buy in order to live in the society. Here we come to the point made by the Daily Reckoning.

We live in the world economy today. There is always a chance that the product can be produced in the country A cheaper than in the country B. Country A can then come to the market of the country B and sell its product cheaper, while still making a profit. Country B has to wrap the production of the product as it is not competitive anymore. Therefore businesses have to fire people thus diminishing the number of the clients on the market.

There is another upside to this – food security. In case with rice it is vital to ensure there is always enough of it for the market. If country A controls 50% of the rice market of the country B, it is hard to see how people are going to get along if A fails to produce enough rice one year.

This is all for today! Have a good appetite:)

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March 31, 2008 - Posted by | Uncategorized | , , ,

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