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Posts Tagged ‘Wheat’

Wheat Prices Affecting Middle East Politics

Posted by Steve Markowitz on May 20, 2011

Key issues were glaringly missing from President Obama’s Middle East speech this week.  While the world correctly focuses on Obama’s proclamation that Israel should accept its 1967 borders even before the negotiations get started, the effect of high food prices in the Middle East, a more significant issue to the average Arab in the street, was ignored by the President.

The Wall Street Journal reported that wheat prices jumped a whopping 17% for the week and 91% for the year.  While this affects many countries, it is especially problematic for Middle Eastern countries due to their huge dependence on imported wheat.

Wheat is the largest food staple in various Arab countries.  In fact, Tunisians consume more wheat per person than any other country in the world, 478 pounds each per year, about three times the consumption of the average American.  It is not coincidental that the ongoing prot4ests in the Arab world started in Tunisia.  Hungry people are unhappy people.

Increasing wheat prices are in part due to weather issues in some producing countries.  However, prices for all foods and commodities have risen due
to policy decisions of the West and the United States in particular.  The decision of central banks and the Federal Reserve to print money to address the economic downturn has led to significant price increases for commodities including food.  In addition, American energy policy that subsidizes ethanol has resulted in farmers planting corn in lieu of wheat.  This too places upward pressure on wheat prices.

Progressives like Barack Obama believe that governmental intervention is the answer to any issue facing a country or the world.  Not only do they often make the wrong decisions, but they rarely consider the unintended consequences of these decisions.  Such is the case with the food inflation America is exporting world.

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Soaring Food Prices Show Consequence of Governmental Meddling in Markets

Posted by Steve Markowitz on March 20, 2011

USA Today published some troubling figures relating to worldwide food prices that included:

  • Corn prices up 52% in the past 12 months.
  • Sugar prices up 60%.
  • Soybean prices up 41%.
  • Wheat prices up more than 24% in 12 months

While Americans have not yet felt these huge food price increases since commodities are often traded in depreciating U.S. dollars, less developed countries have.  This has led to instability in some countries, as well as hunger.  The World Bank estimates that 44 million people worldwide will descend into extreme poverty and hunger because of soaring food prices.  Given that in less dev eloped countries 50% of a family’s budget is spent on food, it doesn’t take much of an increase in prices to create a lot of pain.

There are various reasons for the rapidly increasing cost of food.  Some are difficult to control such as increasing population and affluence that lead to higher demand for food.  However, much of the current food price increases are the result of governmental interventions in markets with examples including:

  • Aggressive Monetary Policies – Western governments including the United States have attempted to forestall the aftershocks of the 2008 financial meltdown through aggressive monetary policies that include artificially low interest rates and the printing of money.  This has led to still other bubbles being created that include speculators running up prices on agricultural products.  It has also caused inflation by pushing down the value of the U.S. dollar for which many commodities are traded.
  • Distorted Energy Policies – United States energy policies have been grotesque.  While worldwide demand increases, America, the largest energy consumer, has stifled development of its vast energy resources.  In addition, Washington has promoted and subsidized the use of ethanol that is nothing more than a subsidy for American farmers.  While it has not increased energy supplies appreciably, Ethanol subsidies have been an incentive to American farmers to concentrate production for energy usage at the expense of food production, driving up food prices.  Making matters worse, as energy prices increase, even more farming efforts are moved to energy production with the World Bank estimating that the U.S. corn crop going to ethanol has increased from 31% in 2008 to 40% this year.

This story of increasing food prices and its growing problematic tentacles is a microcosm of the dangers of governmental intervention into markets.  When a crisis or supposed one occurs, Progressives inevitably claim that without radical governmental intervention the consequences to society will be worse.  With the world jumping from one crisis to another at increasing frequency since the 2008 financial collapse, it is becoming apparent that this logic is fallacious.

While the free market is an imperfect mechanism, it is superior to the Progressive view of governmental  market manipulation because it is cold, continually dynamic and self-regulating.  It does not favor one class or political view over others and it almost instantaneously responds to the changing needs of the market via the unbending rules of supply and demand.  Unfortunately, it will likely take more and increasingly worse crises for the Progressives that manage most economies to except this inevitable reality.

 

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