Warning from a commodity trader
The news source Emerging Markets has a report based on an interview with financial speculator and commodity trader Jim Rogers. He is reported as saying that “the world is on the brink of a serious food crisis” caused by “decades of failure by governments to invest in farming during an era of low prices” which Rogers explains has now left the world “with insufficient capacity to deal with a likely surge in demand for commodities from both households and investors”.
“I’m worried about the world’s agricultural situation,” he told Emerging Markets. “The world is on a knife-edge. We could have gigantic food problems worldwide.” Commodity prices will rise whatever happens to the global economy, Rogers believes. If the recovery kicks in, then demand for basic foods will rise. On the other hand, if the economy fails to recover and governments ratchet up quantitative easing, the extra liquidity will end up in real assets such as commodities.
“There are shortages of farmers developing, because farming has been such a horrible business for 30 years. If things are going to get worse, then prices are going to go higher,” he said. “The main reason [for that] is a shortage of investment for 30 years.” Rogers founded his own index, the Rogers International Commodity Index. Emerging Markets – which is run by the Euromoney magazine, covers the meetings of the IMF and World Bank. It said that Rogers’s comments “come as the World Bank plans to use this week’s meeting to highlight its concerns over rising food prices”.
The report also drew a link between Rogers’ comments and the World Bank’s report, released last month, about the growth of large-scale farmland purchases in the developing world – which the Bank said was alright if managed. Rogers says that politicians who blamed speculative investors for making money out of higher commodity prices would simply deter much-needed investment. “Agricultural prices are going to go up a great deal because of terrible fundamentals over the past 30 years. We even have a shortage of farmers. Politicians will blame the evil speculators, but they had better kiss investors’ feet. Without someone investing and driving up prices, we will soon have no food at any price.”
Meanwhile, The Guardian reports that accurate and timely information on the food stocks held by major grain exporters and importers, or “food intelligence”, could help prevent the sudden and abnormal price hikes that threaten food security. This was one of the proposals put forward at a day-long meeting of the inter-governmental groups (IGGs) on grains and rice at the UN Food and Agriculture Organization (FAO), held in Rome on 24 September.
“We need better information on the food stocks, especially from the CIS countries [Commonwealth of Independent States – a regional organisation comprising the Russian Federation and other members of the former Soviet Union] and many other major exporters, such as China and India, and importers of grains,” said Abdolreza Abbassian, an economist who is also secretary of the IGG on grains. “The big drive of commodity price volatility, and of price spikes, is storage volumes, on which we have terribly unreliable and incomplete statistics,” said food security expert Chris Barrett.
“If FAO could develop credible, timely reports on global storage volumes – at least commercially and publicly held – that would help more than … earlier production reports,” he commented. FAO produces reports on crop estimates every two months. “It’s probably too much to ask for reasonable estimates of residential consumer holdings, which can cumulatively have significant effects on the market, as may well have been part of the story in … 2008,” said Barrett, who teaches applied economics at Cornell University in the US.
Abbassian suggested that the FAO should report every month on the area planted in major grain producing and importing countries, rather than every two months. Maximo Torero, head of the markets, trade and institutions division at the International Food Policy Research Institute (IFPRI), a US-based policy thinktank, said an independent “strong, research-based ‘intelligence unit’ was needed to provide information on stocks around the world”.