Egypt's unrest may have roots in food prices, U.S. Fed policy

[one...two...tree 2,762]

WASHINGTON — Economists and experts in food security have warned repeatedly in recent years that an unbridled rise in food prices could trigger the very kind of explosion of citizen anger that's now threatening to topple the Egyptian government. Such anger is likely to rise elsewhere, too.

A large nation with lots of desert, Egypt must import more than half of its food supply. Since 2008, there's been sporadic unrest there as the cost of staples, from bread to fruits to vegetables, has gone up steadily.

One of those warning about the food prices was Hamdi Abdel-Azim, an economist and former president at the Sadat Academy for Social Sciences in Cairo.

"If the rise in food costs persists, there will be an explosion of popular anger against the government," he told the IPS Inter Press Service in mid-November.

A few weeks earlier, political opponents of President Hosni Mubarak had rallied to protest rising prices and to demand price ceilings on products to protect Egypt's poor.

Soaring food prices aren't the only reason that Egyptians took to the streets to try to topple their long-serving president. But they're a significant factor, and a steady surge in global commodity prices reminiscent of 2008 is sure to bring new battles over food security this year.

Protests against food prices recently rocked Jordan and Algeria. These same rising prices were partly why Tunisia's strongman, Zine El Abidine Ben Ali, fled his nation in mid-January. India and China are navigating the difficult waters of trying to control rising prices in their populous nations.

In the trading pits of commodity markets, the buzz is that many poor nations are trying to hoard wheat, corn and other staples. Such stockpiling has added to the bullish sentiment that's driving commodity prices even higher.

"Countries are hoarding grain supplies right now because they don't want to see what's happening in Egypt happen to them," said Phil Flynn, senior market analyst for commodities trader PFG Best in Chicago.

The United Nations Food and Agriculture Organization took the unusual step last Wednesday of updating its guide for policymakers in developing nations. It urged nations to avoid "policy actions that might appear useful in the short term but could have harmful longer-term effects or even aggravate the situation."

Such actions in the past have involved export restrictions by food-producing nations, which aggravated tight global supplies in 2008 and led to a spike in prices. By restricting exports, these nations, which include Argentina and Ukraine, drove down domestic prices, discouraging production and causing even tighter global supplies.

The Food and Agriculture Organization compiles an index of basic food prices around the globe, and it peaked in December.

"With this new price shock only two years after the crisis in 2007/08 there is a serious concern now about implications for food markets in vulnerable countries," Richard China, the director of the U.N. organization's policy and program development support division, said last week in announcing the updated guidelines.

For U.S. farmers, Egypt presents the eighth largest export market, much of it wheat sales, since the country is the world's leading wheat importer. American wheat and corn are sold across North Africa and the Middle East, prompting worries by U.S. farmers that Egypt's problems will spread throughout the region.

Wheat prices have risen by more than 70 percent over the past 12 months, and corn prices climbed in mid-January to their highest level since July 2008, a period when global food prices soared. They've since dipped slightly, to just under $6.60 a bushel Monday, but they're expected to remain volatile, since corn production is expected to drop 14 percent globally, according to the U.S. Department of Agriculture.

U.S. corn farmers traditionally have had 80 percent of the Egyptian market, although that dipped to 50 percent last year. There's less concern about current shipments, especially since Egypt is thought to have adequate inventories for now. The focus is more on what sort of government emerges there.

"I think, longer term, it is really what's going to happen with the transitional government. Is that some sort of continuation," said Chris Corry, the senior director of international operations for the U.S. Grains Council, which represents U.S. farmers.

The issues in Egypt right now are basic, he said, noting, "The government must function for banks to be open, for payments to get transacted, for commodities to be purchased."

A number of factors are combining to drive up the global prices of wheat, corn, soy and other commodities. Some of the story is weather-related. Argentina, Australia and Pakistan have suffered from heavy rains, which have damaged crop production. Russia is recovering from a devastating drought last year.

Another part of the story is demand. Big emerging markets such as China, India and Brazil continue to soak up greater shares of global supplies, and the recovery in the U.S. economy, the world's biggest, is accelerating.

A third explanation that's gaining acceptance is that the U.S. Federal Reserve inadvertently exacerbated the price picture for grains and other commodities. The Fed has been engaged in what economists call "quantitative easing," buying U.S. Treasury bonds to attack the threat of deflation — the phenomenon of falling prices across an economy.

Quantitative easing has the effect of raising asset prices, whether they're the prices of stocks or what traders are willing to pay for commodities such as wheat or corn. One of the side effects of this policy is that the dollar weakens against other currencies, and that's helped push up the global prices of commodities.

"The truth of the matter is that when the Federal Reserve moved on the quantitative easing, it did export inflation to a lot of these emerging markets," Flynn said. "There's no doubt that one of the side effects of the weak dollar and quantitative easing has been rising commodity prices. It helped create this bullish environment for commodities. This is a very delicate balancing act."

It's a view shared by Ed Yardeni, a veteran financial market analyst, who reached a similar conclusion in a research note to investors Monday. He joked that Fed Chairman Ben Bernanke should be added to a list of revolutionaries, since his quantitative easing policy, unveiled last year in Wyoming, has provoked unrest and change in the developing world.

"Since he first indicated his support for such a revolutionary monetary change in his August 27, 2010, speech at Jackson Hole, the prices of corn, soybeans and wheat have risen 53 percent, 37 percent and 24.4 percent through Friday's close," Yardeni noted. "The price of crude oil rose 19.8 percent over this period from $75.17 to $90.09 this (Monday) morning. Soaring food and fuel prices are compounding anger attributable to widespread unemployment in the countries currently experiencing riots."

Although the policy was announced in August, the Fed didn't begin purchasing bonds until November. It's expected to buy $600 billion worth through June, in hopes of driving down the return on long-term bonds and forcing more investor risk-taking in the economy.

"There are a lot of different sticks in the fire here," said Jerry Gidel, the president of Midland Research Inc., which provides assessments of financial risk. What happens to the price of one food crop affects others, he added, because "it is a human-consumption commodity, and things can get emotional, and they do get emotional. And right now, we're kind of in one of those periods."

Read more: http://www.mcclatchy...l#ixzz1CjWB2LJQ

[^_^ 5,021]

Too bad they didn't listen to you transition to locally sourced agriculture, right Steven? Then they would all be munching on sand-seasoned cacti.

[Gary and Alla 3,694]

It is the fault of the USA in general. And George Bush in particular. And global warming. Damn global warming! I am shoveling more and more of it every day! I am running out of places to put all this global warming.

[^_^ 5,021]

I am shoveling more and more of it every day! I am running out of places to put all this global warming.

No kidding. What a year this has been!

BTW - shovel? Invest in a snow blower, already.

[Gary and Alla 3,694]

No kidding. What a year this has been!

BTW - shovel? Invest in a snow blower, already.

I have a plow. But I have to shovel the walks around the house.

Good for my heart!

[I AM NOT THAT GUY 5,715]

No wonder nobody gets shot in Vermont: All the guns are in the deep freeze.

[^_^ 5,021]

...I have to shovel the walks around the house.

communism!

[Kevin and 10]

Business Insider's list of countries who may have similar unrest due to food prices.

Egypt is #6

The 25 Countries Whose Governments Could Get Crushed By Food Price Inflation

Edited February 1, 2011 by Kevin and Tuyen

[Gary and Alla 3,694]

communism!

Yeah, my former Soviet wife insists! Then she goes out through the attached garage to a warm car started remotely and a door opened remotely. Tough life.

No wonder nobody gets shot in Vermont: All the guns are in the deep freeze.

Except they have 3 times the crime in Quebec and it is even colder there. And we have 7 times the population density.

[mawilson 2,133]

Too bad they didn't listen to you transition to locally sourced agriculture, right Steven? Then they would all be munching on sand-seasoned cacti.

[one...two...tree 2,762]

Too bad they didn't listen to you transition to locally sourced agriculture, right Steven? Then they would all be munching on sand-seasoned cacti.

The ancient Egyptians not only managed, but thrived for thousands of years off the Nile. With enough water and fertile soil, you can grow crops just about anywhere.

[Gary and Alla 3,694]

The ancient Egyptians not only managed, but thrived for thousands of years off the Nile. With enough water and fertile soil, you can grow crops just about anywhere.

Then global warming destroyed the fertile soil, George Bush invaded them for oil and all the modern Egyptians forgot all they knew about feeding themselves because their scientists were not funded and there is no cap and trade bill...and to make it worse, now Obamacare has been ruled unconstitutional.

The Muslim Brotherhood is their only hope. Ancient Egyptians did not have Islam. hmmmm.

It is all our fault!

[mawilson 2,133]

The ancient Egyptians not only managed, but thrived for thousands of years off the Nile. With enough water and fertile soil, you can grow crops just about anywhere.

Population count of Ancient Egypt: between 1 and 2 million

Population count in 2010: 80 million

[I AM NOT THAT GUY 5,715]

The ancient Egyptians not only managed, but thrived for thousands of years off the Nile. With enough water and fertile soil, you can grow crops just about anywhere.

Only with a Jew to manage all their crops.

Genesis 41

[Gary and Alla 3,694]

Population count of Ancient Egypt: between 1 and 2 million

Population count in 2010: 80 million

The process of making Egyptians has stayed the same. They didn't keep up with the process of making food.