It’s important to begin considering the side effects. The United Nations reckons countries spent at least $1 trillion on food imports in 2010, with the poorest paying as much as 20 percent more than in 2009. These increases are just getting started. In January, world food prices rose to another record on higher dairy, sugar and grain costs.This crisis might lead to another: debt. Expect Asian leaders to increase subsidies sharply and cut import taxes. The fiscal implications of these steps aren’t getting the attention they deserve. The same is true of social-instability risks. Events in Egypt are a graphic example of how people living close to the edge can get motivated in a hurry to demand change. Keeping that rage bottled in the age of Twitter, YouTube and Facebook won’t be easy. Hence Roubini’s concerns about geopolitical crises.There’s an extreme irony in the timing of all this. It’s coming as the world is becoming a heavier place. Obesity rates have almost doubled since 1980, and almost 10% of humanity was seriously overweight in 2008, according to the medical journal The Lancet. People have never been fatter at the same time when food prices have never been so high.FAT WORLDThe Westernization of Asia’s diet is partly behind the rise in food costs. Rapid growth, rising incomes, growing populations and urbanization are conspiring to shift eating habits away from the staples of old toward livestock and dairy products.The growing pains inherent in shifting consumption patterns will be especially acute in this region. Unlike the food-price spike of 2008, this one may be more secular than cyclical. Asia alone, for example, will have another 140 million mouths to feed over the next four years. Add that to almost 3 billion people in the fast-growing region and you have a recipe for booming demand.China’s size and scope means it will be buying up ever-growing chunks of the world’s food supply. As the yuan rises, so will China’s ability to outbid everyone else. Increased trade tensions are inevitable, and it will show the futility of food subsidies. Prices will rise as long as consumption does, so it’s really a matter of pouring money down the drain.WEATHER’S WRATHChina also shows how changing weather will bump up against rising living standards. Severe droughts are imperiling wheat crops in the world’s largest producer. It’s creating shortages of drinking water both for China’s 1.3 billion people and livestock. It’s a reminder that water is the next oil. Governments will be scouring the globe for it before long.Rising food prices will complicate things for China’s central bank. That goes, too, for India, Indonesia, the Philippines and even less developed economies, such as Pakistan and Vietnam.This will be an inconvenient reality check for Asia bulls.Take Indonesia, the fourth-most populous nation and home to the biggest Muslim population. Food prices make it harder to deliver higher living standards and narrow the gap between rich and poor. The same goes for other countries in which population growth often outpaces gross domestic product, such as the Philippines.What’s killing households surviving on a few dollars a day is price volatility. If you spend almost half of your income to fill bellies, a 10% surge in cooking oil, wheat or chili peppers is devastating. It’s hard enough to pay rent and handle health-care costs today, never mind investing in education.Governments need to get busy softening the blow, even at the expense of rattling the folks at Standard & Poor’s and Moody’s Investors Service. Otherwise, they will have a bigger crisis on their hands than voters or investors alike can stomach.Bloomberg
Roubini’s next crisis is scary food for thought
Egyptian protests show how governments must respond to rising food prices, ensure better quality of life or face consequences.
It’s important to begin considering the side effects. The United Nations reckons countries spent at least $1 trillion on food imports in 2010, with the poorest paying as much as 20 percent more than in 2009. These increases are just getting started. In January, world food prices rose to another record on higher dairy, sugar and grain costs.This crisis might lead to another: debt. Expect Asian leaders to increase subsidies sharply and cut import taxes. The fiscal implications of these steps aren’t getting the attention they deserve. The same is true of social-instability risks. Events in Egypt are a graphic example of how people living close to the edge can get motivated in a hurry to demand change. Keeping that rage bottled in the age of Twitter, YouTube and Facebook won’t be easy. Hence Roubini’s concerns about geopolitical crises.There’s an extreme irony in the timing of all this. It’s coming as the world is becoming a heavier place. Obesity rates have almost doubled since 1980, and almost 10% of humanity was seriously overweight in 2008, according to the medical journal The Lancet. People have never been fatter at the same time when food prices have never been so high.FAT WORLDThe Westernization of Asia’s diet is partly behind the rise in food costs. Rapid growth, rising incomes, growing populations and urbanization are conspiring to shift eating habits away from the staples of old toward livestock and dairy products.The growing pains inherent in shifting consumption patterns will be especially acute in this region. Unlike the food-price spike of 2008, this one may be more secular than cyclical. Asia alone, for example, will have another 140 million mouths to feed over the next four years. Add that to almost 3 billion people in the fast-growing region and you have a recipe for booming demand.China’s size and scope means it will be buying up ever-growing chunks of the world’s food supply. As the yuan rises, so will China’s ability to outbid everyone else. Increased trade tensions are inevitable, and it will show the futility of food subsidies. Prices will rise as long as consumption does, so it’s really a matter of pouring money down the drain.WEATHER’S WRATHChina also shows how changing weather will bump up against rising living standards. Severe droughts are imperiling wheat crops in the world’s largest producer. It’s creating shortages of drinking water both for China’s 1.3 billion people and livestock. It’s a reminder that water is the next oil. Governments will be scouring the globe for it before long.Rising food prices will complicate things for China’s central bank. That goes, too, for India, Indonesia, the Philippines and even less developed economies, such as Pakistan and Vietnam.This will be an inconvenient reality check for Asia bulls.Take Indonesia, the fourth-most populous nation and home to the biggest Muslim population. Food prices make it harder to deliver higher living standards and narrow the gap between rich and poor. The same goes for other countries in which population growth often outpaces gross domestic product, such as the Philippines.What’s killing households surviving on a few dollars a day is price volatility. If you spend almost half of your income to fill bellies, a 10% surge in cooking oil, wheat or chili peppers is devastating. It’s hard enough to pay rent and handle health-care costs today, never mind investing in education.Governments need to get busy softening the blow, even at the expense of rattling the folks at Standard & Poor’s and Moody’s Investors Service. Otherwise, they will have a bigger crisis on their hands than voters or investors alike can stomach.Bloomberg