Spike in Food Prices Projected by 2013

Source: JOANNA M. FOSTER • New York Times  • Posted: Thursday, March 8, 2012

A driver of higher food prices? Yeast propagation tanks outside an ethanol plant in Underwood, N.D. The state's presidential primary vote was held on Tuesday.

Bloomberg NewsA driver of higher food prices? Yeast propagation tanks outside an ethanol plant in Underwood, N.D.

In 2008 and in 2011, the world was rocked by riots and by revolutions coinciding with spikes in food prices. Now researchers are projecting that by 2013, food prices will soar to unparalleled heights, causing widespread hunger in the most vulnerable populations and social unrest, with an enormous potential for loss of human life.

The computer modeling that generated the prediction of a food crisis was first published by the New England Complex Systems Institute in September. The modeling has gained considerable credibility by accurately predicting food prices over the last 10 months. The research indicates that the crucial factors behind food price increases are the conversion of corn crops to ethanol and investor speculation on the agricultural futures market.

“There are two policy decisions we’ve identified as key drivers,” said Yaneer Bar-Yam, president of the institute. “The first is the promotion of ethanol conversion, which provides the U.S. with less than 1 percent of its energy but has a much larger effect on global food availability.” The second is the deregulation of commodity markets by Congress’s Commodity Futures Modernization Act of 2000, the report said.

Steps have been taken in the United States to address those factors. The nation’s Commodity Futures Trading Commission agreed in October to limit the number of commodity contracts that any investor could hold in agriculture or energy, and American ethanol subsidies were eliminated in December.

Still, Dr. Bar-Yam is skeptical that either of these steps will prevent food prices from spiraling out of control. The federal government still guarantees demand for 37 percent of the national corn crop, he said, and before the end of ethanol subsidies, about 40 percent of the corn crop was being converted to ethanol

And there is strong opposition to the commodities commission’s new regulations, he said, and no guarantee that what goes into effect at the end of 2012 will have real teeth. Moreover, even if one of these measures is effective, speculation or ethanol conversion could have enough of an impact to push food prices past the reach of the world’s poor, Dr. Bar-Yam argues.

“Those who stand to profit from speculation claim that it cannot have an effect on actual food prices,” he said. “Once people understand that markets are not always in equilibrium and that buying futures can affect real prices, we hope they will take action.”