From New York Times – Feb 7, 2011

by Paul Krugman

We’re in the midst of a global food crisis — the second in three years.
World food prices hit a record in January, driven by huge increases in
the prices of wheat, corn, sugar and oils. These soaring prices have had
only a modest effect on U.S. inflation, which is still low by
historical standards, but they’re having a brutal impact on the world’s
poor, who spend much if not most of their income on basic foodstuffs.

The consequences of this food crisis go far beyond economics. After all,
the big question about uprisings against corrupt and oppressive regimes
in the Middle East isn’t so much why they’re happening as why they’re
happening now. And there’s little question that sky-high food prices
have been an important trigger for popular rage.

So what’s behind the price spike? American right-wingers (and the
Chinese) blame easy-money policies at the Federal Reserve, with at
least one commentator
declaring that there is “blood on Bernanke’s hands.” Meanwhile,
President Nicolas Sarkozy of France blames speculators, accusing them of
“extortion and pillaging.”

But the evidence tells a different, much more ominous story. While
several factors have contributed to soaring food prices, what really
stands out is the extent to which severe weather events have disrupted
agricultural production. And these severe weather events are exactly the
kind of thing we’d expect to see as rising concentrations of greenhouse
gases change our climate — which means that the current food price
surge may be just the beginning.

Now, to some extent soaring food prices are part of a general commodity
boom: the prices of many raw materials, running the gamut from aluminum
to zinc, have been rising rapidly since early 2009, mainly thanks to
rapid industrial growth in emerging markets.

But the link between industrial growth and demand is a lot clearer for,
say, copper than it is for food. Except in very poor countries, rising
incomes don’t have much effect on how much people eat.

It’s true that growth in emerging nations like China leads to rising
meat consumption, and hence rising demand for animal feed. It’s also
true that agricultural raw materials, especially cotton, compete for
land and other resources with food crops — as does the subsidized
production of ethanol, which consumes a lot of corn. So both economic
growth and bad energy policy have played some role in the food price
surge.

Still, food prices lagged behind the prices of other commodities until last summer. Then the weather struck.

Consider the case of wheat, whose price has almost doubled since the
summer. The immediate cause of the wheat price spike is obvious: world
production is down sharply. The bulk of that production decline,
according to U.S. Department of Agriculture data, reflects a sharp
plunge in the former Soviet Union. And we know what that’s about: a
record heat wave and drought, which pushed Moscow temperatures above 100
degrees for the first time ever.

The Russian heat wave was only one of many recent extreme weather
events, from dry weather in Brazil to biblical-proportion flooding in
Australia, that have damaged world food production.

Read full article