The "Law of Unintended Consequences" and food riots in the North Africa/Middle East

America and the Middle East Food Riots

Excerpts:

Today there is a global food shortage and sky-rocketing prices. This has become the underlying factor in the riots in Tunisia, Algeria and Egypt, where up to 56% of a person's income is dedicated to the acquisition of food. These riots are now leading to the upheaval of governments and the very real possibility of the ascendancy of the radical elements into control.


While bad weather in various parts of the world is an element of the accelerating food prices there are two other factors directly related to the United States and its policies.


First, because of the enormous deficts run up by Obama administration and the Democrat controlled Congress, the Federal Reserve has had to effectively print trillions of dollars which have flooded the global market. Commodities are priced in dollars, consequently emerging markets throughout the world, and the food sector in particular, are suffering from rapidly rising inflation.


The CRB food index is up an incredible 36% over last year. Raw materials are up 23%. Since 2009 the dollar has declined by over 13% against the Japanese Yen and 25% against the Canadian dollar.

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An example of this inflation is in the price of wheat. The January 2011 futures price is $335.00 per metric ton, last year at this time it was $157.00 per metric ton an increase of 113%. Not all of this increase is due to the inflationary impact of the dollar, but when global yields are down due to weather factors this foolish US monetary policy has made matters needlessly worse.


The second factor in the overall global food situation is the American decision to, in essence, burn food in its cars, a policy championed by the environmentalists since the 1990's. In 2010 the United States produced 13.1 Billion bushels of corn, of that amount 4.2 billion bushels went into ethanol (33% of total production). That represents in 2011, a year in which global stocks are down nearly 8%, over 14% of all corn grown in the world being used in the most inefficient manner possible-American gas tanks.


Thus the futures price of corn per bushel in January 2011 is $6.51 as compared to $3.84 in January 2010 an increase of nearly 70%. While the price spike is in part due to lower yields, had the corn destined for ethanol been put back into the overall corn stocks, the net effect would have been to offset this lower crop and the global market would have maintained the 2010 price level despite the inflationary impact of the dollar.

Comment: Interesing read. Hadn't thought about the connection!