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US draught sparks food system debate

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As the drought across America sends food prices skywards for the third time in five years, extreme weather and market volatility are again battering the global food system. Crop insurances protect farmers. What measures can protect global food security?


Allianz Re
Singapore, Aug 23, 2012


So far, 2012 has been the hottest year ever recorded in the United States. Heat, combined with the most punishing drought since the 1950s, has devastated crops, driving food commodities prices to record highs. This has stoked fears of a repeat of the 2007-2008 food riots in two dozen countries.

In response, the G20 is considering coordinated action, banks are withdrawing from commodities trading, and the UN has called for a halt to U.S. corn ethanol production.

July was the hottest month in America since the National Oceanic and Atmospheric Administration started keeping records in 1895. While some rain and easing conditions helped in August, over half of the continental U.S. is in drought says the government, which at one point designated over 1,500 counties as disaster areas.

The El Nino weather phenomenon in the Pacific Ocean is a likely culprit, as it warms the northern hemisphere. Climate change is also a probable factor, as steadily increasing temperatures since 1895 suggest. A new study by Aiguo Dai of the National Center for Atmospheric Research, predicts a series of severe U.S. droughts in the next 20 years.

Yields down, prices up, security lost

The extreme weather has hit American agriculture hard. During a warm spring farmers planted early to let plants pollinate before the summer heat. But the heat came too early, stunting or killing plants.

By mid-August, “87 percent of the U.S. corn crop, 85 percent of soybeans, 63 percent of hay, and 72 percent of cattle areas were experiencing drought. Over half of the corn and soybean areas are experiencing Extreme to Exceptional Drought,” reported the U.S. Drought Monitor, saying this has led to both “reduced yields and earlier harvests”. The Department of Agriculture has forecast that yields will be down by 11 percent and warns of increased food prices in 2013.

Corn, soyabean and wheat prices have rocketed since June with corn hitting a new record of 330 dollars per ton on average in July, according to a statement from the UN Food & Agriculture Organization (FAO).

The drought raises concerns about global food security as the U.S. is the world’s number one food commodities exporter, accounting for about 40 percent of the corn and soyabean markets in 2011.

Countries that import large amounts of animal feed made from corn and soyabean will likely suffer the most. Moreover, as U.S. corn and soya prices skyrocket, farmers turn to wheat instead, pushing up its price. Wheat prices increased by 26 percent in June and July, observed Shenggen Fan, Director General of the International Food Policy Research Institute (IFPRI).

“Prices for livestock products—such as meat and dairy—may also see an increase as the cost of feed increases, which may result in a deterioration of the diet quality of the poor if they shift their consumption from meat and dairy products to cereal crops,” he warned in a statement.

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