Some 40 percent of the EU budget still allocated to the Common Agricultural Policy. With the commission claiming as its flagship policy the fight against "climate change", and its biofuels quotas an important part of that strategy – all in the context of the current "food crisis", this puts European agriculture once again at the centre stage of EU politics.Rises in food prices also have a strong domestic impact, giving a political "edge" to a matter of strong international concern.
It should thus come as no surprise that these issues have risen up the political agenda and have captured the interest and much of the attention of this blog, especially as the serpentine twists and turns of a rapidly developing situation defy easy analysis and require careful attention. Inevitably, therefore, these issues will tend to dominate the posts, and will do until some clarity or resolution is reached.
That said, there seems to be no resolution on the horizon, the latest development being a dramatic downturn in the price of wheat futures on the Chicago market, the benchmark soft red winter wheat falling to its lowest level since November at $8.01 a bushel on yesterday, 40 percent below its record peak of $13.50 a bushel in February.
This is variously reported by the BBC and others, lending sustenance to those who claim that the recent spikes in wheat prices reflect speculative pressure rather than any real market shortage.
Nevertheless, it was the case that the global wheat production for 2007 was 601 million tons while demand peaked at 612 million, and although the shortfall was met from global reserves, imbalances – often caused by government intervention (or lack of it) – did contribute to the upwards price pressure.
Anyhow, as would be expected, soaring prices have triggered increased wheat plantings for the current season, estimated at 3.6 percent globally, allowing the International Grains Council to project a record world wheat crop of 645 million tons for the 2008/9 harvest, weather conditions permitting, against a projected consumption of 619 million tons.
This global estimate includes predictions from the China National Grain and Oil Information Centre, and important player on the global scene. Although the US is known for its wheat growing, China is in fact the world's largest producer, delivering over 100 million tons annually, more than double the US output. India, incidentally, is number two, producing 70 million tons or thereabouts.
According to the Chinese figures, winter wheat output will grow 1.3 percent this year to 102.6 million tons, lifting its total wheat output, including spring wheat, to 107.6 million tons this year, up 2.5 percent from 2007.
What is puzzling about this buoyant forecast is that yields seem unaffected by the agricultural damage, estimated at 80 billion yuan (about $11 billion), caused by the great winter snow disaster.
This may be explained by the fact that the snows largely affected production in Anhui, Jiangxi, Hubei, Hunan and Guizhou provinces, while the major wheat growing areas are in the eastern Shandong and northern Hebei provinces.
However, Anhui, and Jiangxu are also important wheat-growing areas, so one wonders just how accurate the estimates are, given a totalitarian regime where information is tightly controlled. The USDA, though, seems to think that it is mainly the rapeseed crop that is affected. The snow may even have been beneficial to the wheat crop, in easing some local drought conditions.
With the focus on wheat, we are not entirely out of the woods. Sudakshina Unnikrishnan, an agricultural analyst at Barclays Bank, suggests that the price of other grains like rice, sugar and corn could remain high. "The increase in wheat planting could come at the expense of other crops - it's a zero sum game," she says.
This seemed to be borne out by Chicago prices. July rough rice futures soared 2.3 percent last Wednesday to a record $24.85 per hundredweight. Said Kenji Kobayashi, a grains analyst at Kanetsu Asset Management in Tokyo, "Some of the main rice producing countries have imposed export curbs ... and this has combined with low global stocks to drive rice higher."
A day later, though, US Agriculture Secretary Ed Schafer was exuding reassurance, saying there was no shortage of rice in the United States. He put the surge in rice prices down to speculation about future rice shortages – in part, at least. "We don't see any evidence of the lack of availability of rice. There are no supply issues," he declared.
Ramming in the message, he then added, "Part of the price issue is speculation because we're so close to capacity...that if something disrupts it like the weather pattern then you can start seeing some supply issues. But today there are no supply issues that we see in the marketplace or in the foreseeable future."
On the face of it, therefore, one could perhaps tentatively suggest that the crisis is over, or largely under control – given that there are no weather events which have a major impact on yields. But what is missing from the equation is any estimate of the crops needed for biofuels. This we explore in Part 2.
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