U.S. Drought and Rising Global Food Prices

The ongoing drought in the Midwest has affected approximately 80 percent of the U.S. corn crop and more than 11 percent of the soybean crop, triggering a rise in global food prices (RFE/RL) that CFR’s Isobel Coleman says may fuel political instability in developing countries. The United States produces approximately 35 percent of the world’s corn and soybean supply, commodities that are "crucial in the food chain, because they are used for feed stock for animals," Coleman says. Growing demand for meat and protein from emergent middle classes internationally has made many countries dependent on "relatively inexpensive food stocks" from the United States, she explains. "When you see a crop failure of the magnitude you have seen this summer, it flows through the whole food chain," says Coleman, who recommends reconsidering the U.S. ethanol mandate and building "more resilience into the global food system."

How is the U.S. drought affecting commodity crops, food production, and prices?

As recently as May, experts were predicting a record crop in the United States--and of course, what the United States does is so important, because the Midwest is the bread basket for the rest of the world. But with severe drought in the Midwest, you’ve already seen a failure in the soybean and corn crop in the United States. That increased world commodity prices, and it is going to trickle through the whole food chain.

This is the hottest summer on record in the United States since 1895, and people are beginning to wonder whether this type of drought that we’re experiencing could become a new normal. The United States is a pivotal player in world food production and has the most sophisticated agricultural sector in terms of seeds, technology, irrigation, deep commodity markets, and future markets. If the United States crop is so devastated by drought, what is going to happen to the rest of the world?

How do rising U.S. food prices affect global food prices down the world’s food supply chain? Which areas of the globe are most at risk?

There are many large food producers in the world. China is the largest wheat producer, but it is also the largest wheat consumer. What makes the United States unique is that we are the largest exporter, so we produce about 35 percent of the world’s corn and soybean supply. Those two commodities are crucial in the food chain, because they are used for feed stock for animals. Around the world you have rising middle classes, a growing demand for meat and protein in the diet, and countries around the world are becoming increasingly dependent on relatively inexpensive food stocks from the United States. When you see a crop failure of the magnitude you have seen this summer, it flows through the whole food chain.

Right now you have American livestock producers taking their pigs and cattle to the slaughter house because they simply don’t have the food to be feeding them. So you’re going to see meat prices in the short term in the United States go down, but over the longer term you’re going to see rising meat prices; [experts] are predicting already 4 to 5 percent price increases in meat for the next year. That flows through the whole food chain, [to] big-population countries that import a lot of food, such as the Philippines, Afghanistan, Egypt. And when you see rapidly rising food prices, of course it leads to instability. We’ve seen [this] in the last five years across many of those countries, and you see rising food prices translate almost directly into street protests.

You’re going to see the continuation of [political] instability driven in part by rapidly rising food prices. In 2008, we had food protests across much of the Middle East, so governments are going to be very much on the alert for unrest and very sensitive to it. Egypt is already spending about one-third of its subsidies on food, and it is draining the Egyptian foreign exchange reserve to continue those subsidies. This combination of an already mobilized population out on the streets demanding lots of different changes [in Egypt], and rising food prices is going to create a very unstable atmosphere.

What are some policy responses for alleviating the pressures being felt in the United States and other countries because of rising food prices?

In the United States, we have to look at our own policies that are part of the problem, [including] our mandated use of ethanol in gasoline. This is something that is a mandated [10] percent that is not flexible, and when you have rising food prices and a problem with the failing crop, you would think that maybe we could lighten up on the ethanol mandate. Because right now so much of our food production is going into ethanol. So you’ve already seen governors across the United States in some of the hard-hit states saying, "Shouldn’t we review our ethanol policies?" That’s not a short-term fix, but it is potentially longer-term and something we should be looking at carefully.

In terms of policy, we have a rising global population. We have more mouths to feed every year, and food security for the world is a critical issue. We should be looking at how to build in more resilience into the global food system. Africa, which has the highest population growth rates of any continent in the world, used to feed itself and used to export food, but [its] agriculture has suffered tremendously over the last half century. Only 4 percent of the land in Africa is even irrigated, and you’ve seen a green revolution occur in many parts of the world that has really passed Africa by. And so building in greater resilience and improving the agricultural capacity of Africa is a critical part of this equation, so that Africa has more of an ability to feed itself and become more a part of the global supply chain and not be so dependent on it. Unfortunately, governments have not made the investments in the agricultural sector that they needed to over the past half century, which is why you have this situation in Africa today.