Michael Snyder: A Food Crisis is Looming

Many Singaporeans have been complaining about rising food prices in the past 2 years and many have put the blame on the government. As is typically Singaporean, we prefer to look for someone else to blame rather than recognise the fact that irrespective of blame, the most urgent thing to do is the protect ourselves and our families by taking steps to ameliorate the effects of more expensive food.

For those who feel that something is not quite right but need a little bit of extra push to get going in terms of preparedness, here's a recent article on the possible global food crisis that we may soon have to face:

In case you haven’t noticed, the world is on the verge of a horrific global food crisis. At some point, this crisis will affect you and your family. It may not be today, and it may not be tomorrow, but it is going to happen. Crazy weather and horrifying natural disasters have played havoc with agricultural production in many areas of the globe over the past couple of years. Meanwhile, the price of oil has begun to skyrocket. The entire global economy is predicated on the ability to use massive amounts of inexpensive oil to cheaply produce food and other goods and transport them over vast distances. Without cheap oil the whole game changes. Topsoil is being depleted at a staggering rate and key aquifers all over the world are being drained at an alarming pace. Global food prices are already at an all-time high and they continue to move up aggressively. So what is going to happen to our world when hundreds of millions more people cannot afford to feed themselves?

The full article can be found here: 20 Signs That a Global Food Crisis is Coming.

Food inflation and Price Caps

Someone, in a letter to the Today newspaper published on Monday, suggested that the government implement measures to cap price increases in essential food items to fight what he perceives to be profiteering. The example of Malaysia was used by the author to justify the feasibility of price controls.

That the idea is unsound is very obvious when one considers the following points:

• Malaysia has significant domestic food production capabilities, and doesn't have to be a price-taker on the international food market.
• It has an elaborate government bureaucracy designed to subsidise various parts of the food production value-chain so as to keep prices low.
• Capping food prices in Singapore's context will mean a fall in supply if the caps make selling some items unprofitable for importers.
• Price caps benefit both the rich and poor, so that if subsidies were involved, it would be an inefficient use of taxpayers' money.

I think the government's approach of targeted help for the lower income group is a better method as it does not create as much distortions in the food market and help is only given to people who need it. For the rest of us in the middle class, we can adjust to higher food prices by cutting back on other discretionary spending.

That said, the government can help to some extent by using its influence on NTUC Fairprice to have the latter introduce more price competition in the food market, so as to minimise the risk of profiteering. Using competition to fight profiteering is far better than using legal sanctions, as anyone who understands elementary economics will know.

Food Crisis 2011 - Riots in Algeria

The Associated Press has reported that youth in Algeria had rioted on Thurs over rising food prices and high unemployment. This could be the first salvo in what may become a global food crisis in 2011 as developing countries cope with food inflation brought about, in my view, by the reckless money printing of various countries trying to devalue their respective currencies in order to export their way out of economic troubles. Chief amongst these is of course the US Federal Reserve and the People's Bank of China.

In India, food inflation for Dec 2010 was over 18% in a situation that is worsening, contrary to the expectations of government officials there.

In Singapore, the situation is also getting worse. Someone who runs a food stall at the canteen in my office building told me over lunch that food inflation is serious enough to have an impact on the stall's selection of food inputs and the type of dishes that can be sold profitably.

We need to get prepared. Remember to stock up on essential food items when there are cheap sales.

Quantitative Easing and Rising Food Prices

In my last post, I wrote about the effects of global monetary stimulus on stock prices. Along the same lines of argument, it can also be argued that in addition to poor harvests, rising food prices can also be partly attributed to the pools of liquidity sloshing around the globe looking for higher returns. And in fact, a hedge fund manager has made this particular argument, as seen in the blog article enclosed below:

Auerback: You Can Thank Ben Bernanke for Higher Food Prices

From an end-user perspective, it of course sucks that food prices are going higher, irrespective of the causes. But what we can't change, we adapt to by taking defensive measures such as food storage, eating out less etc.

Are we near a food crisis?

The Financial Times has reported on worries of an impending food crisis after the U.S. Department of Agriculture predicted that the country’s stocks of corn would halve to their lowest levels in 14 years.

Looking at the price increases, there seems to be cause for concern indeed. Data shows that in USD terms, year-on-year prices have increased as follows:

• Beef - 23%
• Pork - 68%
• Sugar - 24%
• Coffee - 45%
• Barley - 32%
• Oranges - 35%

Given that money in the bank is earning almost 0% interest, it does appear to me that 'investing' in a store of food at home is likely more profitable, given the rates of food price inflation.

'Biblical' Plague of Locusts Hit Australia

Australia has been hit by possibly the worst locust plague in a 75 years. According to this news report from the UK, farmers are warning of a grasshopper plague of 'Biblical proportions'. Up to 2.5 million hectares of infested land are now being treated by various agencies in New South Wales, as reported by ABC Australia.

Given that Russia now has stopped exports, and Canada is going to lose 17% of its wheat crop due to floods, it looks like the outlook for food for the next year will be increasingly challenging. With a 75-day inventory of rice at present, it looks to me that we are quite near to edge, 1 crop failure away from famine some place in the world.

Look for higher prices in food. Prepare for it accordingly.

Rice prices could rise

Agri-food analyst Ned Schmidt made some important points during his interview with the Financial Sense Newshour over the weekend, where he noted that higher food prices are coming our way. The following points are what I felt was important:

• 1/3 Russian winter wheat crop this year may disappear and we'd have to wait until Spring 2012 for a decent crop.
• US rice prices have reversed their price action and are now heading up. This could also affect Singapore prices even though our main source of import is Thailand.
• Grain prices on the whole are heading up and this will soon feed into higher meat prices.
• There is a need to determine the damage done by the recent floods in Pakistan to its irrigation system, which in Ned's view is the most sophisticated in the world. Pakistan is the 3rd largest exporter of rice in the world after Thailand and Vietnam. If there is damage to the system, it could well mean that global supplies of rice will be reduced in the coming years, and this will undoubtedly have an impact on us in Singapore.
  
• Famine in some poorer parts of the world cannot be ruled out. For example, the food situation in Egypt is now critical.

In view of this, what I am likely to do is to look at enhancing my family's food storage capabilities to store more staples and also look at putting more money into investments related to agriculture.

What are you going to do for your family?

Storing Food at Home

While we Singaporeans fuss a whole lot over food, as evidenced by the plethora of food shows on TV and food review blogs, most of us have taken the available of food for granted. This is not surprising given that most of us don't live too far away from a food outlet where we can have access to food in a relatively cheap and convenient manner. As such, when I mention food storage at home to my friends, some of them look at me like I am a doom-and-gloomer.

Yet, food storage is something prudent even when food is readily available. Consider the SARS epidemic in 2003. If you were served with a Home Quarantine Order (HQO) by the government, you would have been provided food by the relevant authorities. But however, if you had food stored away at home, you would have been able to expand your choice of food without having to rely on the government. Even if you were not served with a HQO, the stored food allows you to minimise leaving your home to eat or purchase food at crowded places, thus reducing your risks of infection.

Apart from this, storing food is also a way to beat inflation. The latest CPI figures published by the Department of Statistics show an annualised increase of 3.3% for the previous month, which suggests that inflation is perhaps trending up. On a more personal note, I bought some muffins whose price had increased from $1.60 last year to $2.00 now, a 25% increase! Food storage allows us to plan for the purchase of excess quantities of food items that have long shelf-life when they are on sale. Given my limited experience with the supermarket, it does seem to me that sooner or later, every item in the supermarket is up for price reduction at some point in time. With some planning, one should be able to buy desired items when they are sold with promotional prices, and with rotation through our food stockpile, it will mean that we are consistently consuming food that is cheaper than what they sell for at the time of consumption.

So, how does one start on food storage? One simple way to start is to follow the guidelines in the Emergency Handbook published by the Singapore Civil Defence Force. After getting up to speed with 2 weeks' of food stored, as recommended by the SCDF, we can then move forward towards storing up to 1 month's worth of food.

Preparing for higher food prices

Based on anecdotal evidence from my mother's trips to the supermarket and wet market, food prices have been increasing recently.

At the macro level, various disasters in Russia, Pakistan and other parts of the world have resulted in lower crop output, and food availability on the global markets is further exacerbated by the recent Russian decision to ban wheat exports until late 2011. On a longer term basis, that there are increasing worries about global food supplies can be seen in the intense M&A battles over top-quality fertiliser companies, such as the Rio Tinto bid for PotashCorp of Canada.

Given the likelihood of pressure on global food supplies, it would be prudent for us to practise food storage at home. The habit of buying and keeping extra food can help to lower our food costs over the longer term, as it allows us to plan our purchases when items are put on sale by the supermarket chains. Of course, storing food implies having a system for tracking expiry dates so that we consume the items on a timely basis, and rotate them periodically, buying new supplies to replenish the stock levels.

Besides food storage, for those who are so inclined, growing a small set of food crops can also be done, even if one is living in an HDB flat. For more information, one can visit the Green Culture Singapore forum, where enthusiasts provide tips for growing food in small areas.

By doing what are within our means, we can hopefully ameliorate some of the effects of the coming food crunch and help protect our families to some extent.