Messing With Their Rice Bowls

Folk wisdom holds that it is always dangerous to mess with another man’s rice bowl. Yet, this week, (April 8, 2008) rice climbed to a record for a fourth day as the Philippines, the world’s biggest importer, announced plans to buy 1 million tons and some of the world's largest exporters cut sales to ensure they can feed their own people.

Rice, the staple food for half the world, gained 2.4 percent to $21.50 per 100 pounds in Chicago, more than double the price a year ago. Philippine President Gloria Arroyo vowed today to crack down on hoarding and said she “would jail anyone found guilty of stealing rice from the people.''

According to the 2006 Family Income and Expenditure Survey, the latest conducted by the country's National Statistics Office, 68 million of the country's 90 million inhabitants live on or under US$2 a day. The same survey shows that for every $2.40 in daily earnings, more than a third goes towards food expenses, while the rest is spent on medicine, clothing, education and other expenditures.

The Philippines is tightening controls over domestic sales and boosting overseas purchases to curb price rises and avoid the kind of unrest experienced by some African countries. The government plans to buy more rice at tenders in April and May.

From Cameroon to Mexico, riots have erupted as staples like rice and corn flour become unaffordable. In Pakistan, wheat flour prices have doubled. World soybean prices are at record highs. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials gained for six consecutive years and advanced 15% this year.

The U.N. World Food Organization (WFP) has warned of a "new hunger" spreading across the globe, plunging poorer countries into unrest and violence. The planet has never seen anything like this. Experts call it the worst food price inflation in history.

What's going on here? Why is global food security suddenly on a knife edge? Earlier this month, WFP chief Josette Sheeran described a "perfect storm for the world's hungry" caused by low food stocks and high food and oil prices. Among other factors, global population growth means more mouths to feed and less land to grow crops on. Falling water tables, particularly in China and India, have also tightened grain supply.

But what is the link between food and oil prices? We've heard a lot about the biofuels boom and its impact on food security. But what is the magic mechanism that shackles the price of tortillas to the fortunes of the energy market?

Rising food prices are fueling global inflation. Wholesale costs in India rose 7 percent in the week ended March 22, the fastest pace in more than three years, underscoring the threat from rising food costs. Lester Brown president of the Earth Policy Institute think tank in Washington and has been tracking agricultural commodity trends for more than half a century. He was interviewed by Reuters. He said to understand today's food price inflation, you need to rewind to 1978.

That was the year the United States first began its program to convert grain into ethanol, which can be used to power cars. It seemed like a fine idea at the time, given the 1970s oil shock that had highlighted U.S. dependence on Middle Eastern exports. Things chugged along harmlessly until 2005 when Hurricane Katrina interrupted oil production, imports and refining in the Gulf of Mexico. Fuel prices shot up. Corn prices, however, were still relatively cheap at around $2 a bushel. Suddenly, the market price of ethanol was about double the cost of producing it.

With this sort profit margin billions of dollars began to flow into biofuels. About 18 percent of the U.S. grain harvest now goes to make ethanol. Some forecasts predict that by the end of the year the figure could be more like 28 percent. "What has happened is that we have basically developed a very substantial capacity for converting grain into oil - or ethanol," he said. "What this means is that the price of grain is now tied to the price of oil because if the food value of the commodity is less than the fuel value, then the market will move that commodity into the energy economy.

Why is this a conversation that matters to us? Unlike the Philippines or Haiti, in the United States, income spent on food is a much smaller percentage. For many planners, who work with high income clients, it affects them even less then the average American. Is the conversation limited to “Yes, thank goodness we own Monsanto, Archer Daniels Midland, Mosaic and gold.” Somehow it feels hollow. From a purely selfish interest, the social unrest that these food shortages cause can surely lead to increased terrorism and war. According to Brown, "We used to have a food economy and an energy economy and they were more or less separate. Now they're beginning to fuse, and in this new world where the price of grain is tied to the price of oil, if the price of oil goes up, so grain goes up. "that is a threat to political stability and security in the world that I don't think we've come close to grasping yet.

China, Egypt, Vietnam and India, representing more than a third of global rice shipments, curtailed sales this year to protect domestic stockpiles. The World Bank in Washington says 33 nations from Mexico to Yemen may face ``social unrest'' after food and energy costs increased for six straight years. The World Food Program issued an emergency appeal last month, urging donor nations to fill "a critical funding gap" as it tries to meet the emergency needs of 3 million people a day in Darfur -- as well as 70 million people in some 80 other nations.

The United Nations said four people died in two days of rioting last week over food prices in Haiti, the western hemisphere's poorest country, the Organization said on its Web site. We see in Haiti, as in many countries, rising prices that mean less food for the hungry. Africa, Cameroon, Egypt, Indonesia, Ivory Coast, Mauritania, Mozambique and Senegal have also experienced unrest in recent weeks related to soaring food and fuel prices, according to the UN report. Scarcity has usually led to violence and crime. But beyond this, as Brown noted, “What we now have is a situation where the 860 million people who own cars are competing with the 2 billion poorest people in the world for the same grain supply.

Surely, this is “messing with their rice bowls” in the broadest sense. This is not only a political and economic issue but also a moral and practical one. Is our work done merely by making sure that our clients will profit? What is the conversation we should be having with our family and friends? What is our responsibility as stewards?