Signalfire

Two years after the food crisis, when soaring prices raised the spectre of mass hunger and starvation, food inflation has made a comeback.

For Potash Corp. of Saskatchewan Inc. POT-T , the world’s biggest fertilizer maker, the price surge could not come at better time as it fights a $39-billion (U.S.) takeover bid from BHP Billiton Ltd. But in the developing world, the strain of higher food costs is beginning to show.

Last week’s riots in Mozambique, which left at least 10 dead, were the first food riots since the crisis of 2007 and 2008, when violent unrest swept through Haiti, Egypt, Western Africa and several other poor regions. The Mozambique riots followed the government’s decision to raise bread prices by 30 per cent, though rising water and electricity costs also helped to spark the uprising.

International food prices were up 5 per cent in August, the biggest one-month increase since last November, said the United Nations Food and Agriculture Organization in Rome, which has called a one-day meeting on Sept. 24 to examine the global markets for grains and rice. European wheat prices hit more than €231 ($308 Canadian) a tonne last week, which was close to the two-year high of €236 set in August, largely because drought has hammered the crop in Russia. Corn prices are at their highest level since mid-2009. Sugar and oilseed prices are also climbing.

The FAO, however, is being careful not to describe the galloping prices as a “crisis” or an “emergency,” noting that its Food Price Index, while up substantially in recent months, is still 38 per cent below its peak in June, 2008. The organization’s approach underscores how policy makers are trying not to set off the alarm, partly out of fear that the expectation of higher prices will drive hedge funds and other financial players into food futures, causing prices to rise even more, as happened in 2007-08

“The worst is behind us already,” Abdolreza Abbassian, the FAO’s senior grains economist, said in an interview Monday, noting that last week’s extension of a wheat export ban in Russia caused barely a ripple in the markets.

“This is not a food crisis. If you say food ‘crisis,’ you get a food ‘crisis’ because the speculators pile in.”

The global food markets are “overreacting,” he said, to the Russian export ban because almost none of the conditions that were in place two or three years ago exist today. World wheat stockpiles, at 175 million tonnes for the 2010-11 season, may be down somewhat from their peak but are still 40 per cent higher than in 2007-08, according to the U.S. Department of Agriculture; oil prices are about half of their 2008 peak of $147 (U.S.) a barrel; and economic growth is weak in Europe and North America, which means the demand for animal feed is barely rising.

Still, Mr. Abbassian said the recent sharp rise in food prices is not welcome and that extreme weather conditions, which seem more common, will ensure that food markets become more volatile than usual. Volatility, he notes, attracts speculators, whose trades can only increase the frequency of wild price swings. “Liquidity can come from any direction at any time,” he said.

Those swings, and the way they impact farmers’ use of fertilizer, are a key factor in the takeover drama between Potash Corp. and BHP, the world’s largest mining company. Potash Corp. dismissed BHP’s unsolicited $130-per-share bid as “grossly inadequate,” partly because it believes rising food demand and prices will translate into robust fertilizer prices.

Potash Corp. is exceedingly bullish on potash prices as food prices and demand pick up momentum. In its directors circular, amended on Friday, it said it could generate $10-billion in EBITDA – earnings before interest, taxes, depreciation and amortization – by 2015, assuming full operational capacity (which is said it cannot guarantee) and a potash price of $800 a tonne.

Analysts suggested extremely high utilization rates are a dream, given that potash supplies should increase by half by 2020, outpacing demand. UBS said utilization rates “above 82 per cent are required to shift up pricing significantly. … Utilization rates will peak at 75 per cent in 2020, but will be insufficient to catalyze a significant shift in pricing.”

The UBS price estimate for potash between 2013 and 2015 is $400 a tonne, up from this year’s estimate of $340. This suggests the recent food price surge will have to be long lasting if it is to have a dramatic effect on potash prices.

Potash rebounds

Potash is used almost exclusively for fertilizers and has no substitute. Fertilizer use is one of the most cost effective ways to boost crop yields, though many poor farmers in developing countries cannot afford it.

Last month, analysts at UBS predicted a sharp rebound in global potash consumption this year, to 27.5 million tonnes, up 42 per cent from 2009, when food prices slumped. UBS forecasts consumption of 32.4 million tonnes next year, following by several years of steady, if unspectacular, growth.

ROME — The UN’s food and agriculture body on Friday called a special meeting to address growing tensions on the food markets, as Russia prolonged a wheat export ban and food riots broke out in Mozambique.

But the Food and Agricultural Organization (FAO) said the September 24 gathering was not an emergency meeting and dismissed any comparison with the situation in 2007-2008.

During that period, food shortages and the resulting price rises sparked riots throughout the developing world.

“The fundamentals are right, they are not those before the crisis in 2007 and 2008,” an FAO official insisted.

“There are plenty of stocks and prices are below the peaks of 2008. But there is lots of turmoil.”

Abdolreza Abbassian, an economist and grain analyst at FAO said although the organisation did not fear a new crisis, “there is already some anxiety on the markets.”

Russia’s announcement “will prolong anxiety and volatility,” he added.

Prime Minister Vladimir Putin said Thursday that Russia, a major world producer, would not lift a ban on grain exports before next year’s harvest.

That extended the embargo until at least mid-2011 after a record drought destroyed a quarter of Russia’s harvest.

In Mozambique meanwhile, seven people were killed and 288 injured during riots Wednesday and Thursday over rising bread and fuel prices in and around Maputo, the capital of the country.

The price of bread has risen 17 percent, increasing pressure on struggling households in a country with a per-capita income of just 794 dollars (620 euros) a year.

BEIJING (AP) — China has ordered local leaders to cool a surge in politically sensitive food prices by raising vegetable production amid rising tensions in poor countries over surging food costs.

Mayors were told to make sure local markets have a week’s supply of vegetables, said a Cabinet announcement on Friday. It said state banks were told to lend to producers to increase output amid shortages blamed on summer flooding and drought in some areas.

“Making sure of vegetable supplies and price stability is an important task for now and in the future,” the Cabinet statement said. “Local governments should manage inflation expectations well and realize the importance and urgency of this.”

China’s food price inflation spiked to 6.8 percent in July over a year earlier, pushing overall inflation to 3.3 percent, its highest level this year, according to government figures.

Elsewhere, a jump in food prices triggered deadly riots in Mozambique this week and the poor in Asia, the Middle East and Africa are under strain after global prices jumped 6 percent in the past two months alone.

No unrest has been reported in China but food prices are politically sensitive in an economy where the poor majority spend up to half their incomes to eat.

Beijing has repeatedly emphasized the importance of ensuring adequate food supplies this year and has threatened to punish merchants who profiteer.

China also suffered a spike in food costs earlier when vegetable prices jumped 14.9 percent in April and fruit prices soared 16.4 percent.

Beijing has repeatedly said it is confident of meeting its 3 percent inflation target for 2010. But private sector analysts expect overall August inflation to rise above 3.5 percent, driven partly by food costs.

01 Sep 2010

Anxieties over the rising cost of food are bothering consumers in rich and poor countries alike, and stoking fears of social unrest in impoverished, unstable parts of the world once again.

On Wednesday, at least six people – including two children – were killed during violent demonstrations over soaring prices for basic necessities, including bread and fuel, in and around the capital of Mozambique, one of Africa’s poorest countries, sources told Reuters. The government has just increased bread prices by 30 percent.

“I can hardly feed myself. I will join the protest because I’m outraged by this high cost of living,” said Nelfa Temoteo, who lives in Maputo’s crowded Malhazine suburb.

The violence echoes the food price crisis of 2007-2008, which helped push the number of hungry people in the world above a billion, and sparked protests and riots in nearly 40 countries, including Mozambique, Egypt, Haiti and Lebanon.

In Britain too, shoppers will have noticed their supermarket bills going up again. The overall price of food and non-alcoholic drinks rose by 1 percent from June to July, the biggest single monthly rise ever recorded in government figures, the Daily Telegraph newspaper reported. And in Pakistan, where the worst floods in decades have damaged 3.6 million hectares of maize, rice, cotton and sugar cane, the U.N. Food and Agriculture Organisation (FAO) is warning the next wheat harvest is at risk as the disaster has destroyed more than 0.5 million tonnes of seed stocks ahead of the planting season, which starts this month.

“Food aid alone will not be enough. If the next wheat crop is not salvaged, the food security of millions will be at risk,” said Daniele Donati, FAO’s regional emergency operations chief.

In late August, Pakistan’s Dawn newspaper criticised the government-subsidised Utility Stores Corporation for hiking the price of certain foodstuffs like oil, ghee, pulses and gram flour by more than 20 percent, wiping out discounts it had earlier announced for the holy, fasting month of Ramadan.

The paper said the price of wheat flour is also creeping up in Asia’s third-largest wheat producer, and the higher cost of food is likely to hit the poorest hard.

“We must ask if this is just the beginning of a series of nasty shocks for the low-income consumer. Though far from perfect, the utility stores are a lifeline for those with limited means,” Dawn said in an editorial, urging the government to keep essential items at affordable levels in the shop chain, which is meant to sell staples at below-market prices.

People in crisis are also suffering in the Somali capital of Mogadishu, where food prices have reportedly shot up since Ramadan began, as Islamist rebels renewed their military campaign against the fragile government. One butcher told Associated Press he’s selling a kilo of meat for $3, up from $2 before Ramadan, and a sugar importer said supplies are dwindling in markets because traders have left or stopped importing food because of the fighting.

WHEAT THE MAIN CULPRIT

Ramadan may be a contributing factor in Muslim countries, as people stock up for holidays and special occasions. But across the world, food prices jumped sharply last month, which is likely to exacerbate local causes like floods, conflict and religious customs.

Surging wheat prices – mainly due to Russian restrictions on sales following a major drought there – drove international food prices up five percent in August, the biggest month-on-month increase since November 2009, the FAO said on Wednesday. The FAO’s Food Price Index – a basket of meat, dairy, cereals, oils, fats and sugar – has reached its highest level since September 2008, but is still 38 percent below its peak in June 2008.

The U.N. food body says the forecast for world cereal production this year has been lowered by 41 million tonnes to 2,238 million tonnes since June, but that would still be the third highest annual amount on record and above the five-year average.

Expected global rice production for 2010 has also been revised downward – mainly due to Pakistan’s floods – and now stands at 467 million tonnes, 5 million tonnes lower than June’s forecast but still 3 percent more than in 2009 and a historical record.

The FAO says the disturbances in cereal and rice markets will be tackled at a special inter-governmental group gathering it’s holding on Sept. 24.

No doubt both international and national policy makers will be keen to avoid a repeat of the crisis two years ago, and work done by researchers who analysed their responses back then should help prevent the same mistakes being made again.

Julia Compton of the Overseas Development Institute described in a blog earlier this year how bad government action can make the situation worse, citing the example of one Asian country that stoked fears of a national rice shortage, sending better-off consumers scurrying out to the shops to buy as much as they could, leaving the shelves empty.

And even though cash payments were recommended by international agencies as one of the best ways to help poor people afford expensive food, many countries found they couldn’t set up national welfare systems just like that, she wrote.

WHEN TO ACT?

Prices may not yet be spiralling as severely as in 2008, but how bad should things get before those in power start taking action?

In Pakistan, politicians know they can’t afford to upset a population mired in crisis any further, with an official indicating to Reuters last week the government would likely scrap plans to export 2 million tonnes of wheat.

Given it’s a staple food, any shortages or steep price hikes would further inflame public anger towards the government, which has faced mounting criticism over its handling of the catastrophe.

Pakistan banned wheat exports in 2007 because of shortages and high domestic prices – but some experts say such restrictions are a short-sighted response because they tighten supplies on world markets, pushing international prices even higher.

Wheat futures – financial contracts for supplies to be delivered at a later date – hit two-year highs earlier in August after Russia slapped on an export ban.

It’s too early to tell exactly what trouble today’s international price developments spell for the world’s poorest a little further down the line, but the alarm bells have started ringing.

The Financial Times reported on Monday that Egypt has seen small, localised public protests against high food price inflation.

Ministers have reassured voters there won’t be a rise in the price of the country’s subsidised loaves – sold for less than 1 US cent each – fearing social upheaval. So rather than hitting poor people’s pockets for now, the budget deficit is set to swell as the government absorbs the growing cost of wheat imports for its citizens’ daily bread.

While countries will respond differently, depending on their existing food policies and poverty levels, no one can say they haven’t been warned this time.

Lydia Wang, a 28-year-old marketing manager in Shanghai, gripes that the shoes and clothing she normally buys are at least 50 percent pricier than in 2009. Wu Sengyun, a 54-year-old retiree in the coastal city of Ningbo, Zhejiang, says prices of fruit and fish are up more than 20 percent in the past year.

Willy Lin has cut back on free drumsticks in the canteen of his Jiangxi clothing factory as meat and vegetables grow dear. “The workers suffer,” he says. “Everybody is crying.”

Officially, China’s consumer price inflation topped out at 3.3 percent in July compared to a year before, a 21-month high. Officials say the spike is a one-off caused by crop damage from recent flooding. Other costs, they say, such as cars, mobile phone bills, and clothing, are falling, and pressure on prices should ease as the economy cools. At an Aug. 12 press conference, Pan Jiancheng, a deputy director in the statistics bureau, said the inflationary threat was “overhyped.”

Consumers, investors, analysts and academics interviewed by Bloomberg BusinessWeek in its Aug. 30 issue beg to differ.

“There has been a jump in prices that isn’t reflected in the numbers,” said Chinese Academy of Social Sciences economist Yu Yongding, a former adviser to China’s central bank.

Michael Pettis, a finance professor at Peking University, said he wonders how a country that grew 10.3 percent last quarter and is seeing upward pressure on wages could register a price rise of a few percentage points. Multinationals in China expect to raise wages an average of 8.4 percent this year, according to Hewitt Associates Inc., a human resources consultant.

Ordinary Chinese

Ordinary Chinese have yet to see increases in their housing, education, and medical expenses reflected in the official numbers, these analysts said.

“Inflation could well be 6 percent now for most people in China,” Peking University’s Pettis said.

If the doubters are right, then the government has an inflation problem that it either hasn’t figured out how to measure, or has chosen to ignore. Other vital Chinese statistics, like retail sales and unemployment, have also been murky. In the case of inflation, misjudging could prevent the kind of swift action needed to tame prices now, and force the government to apply harsher measures later, such as an increase in interest rates or an appreciation of the currency to curb growth. There are political risks too: Social unrest in China has been triggered when ordinary workers can’t keep up with the cost of living.

Data ‘Oddity’

Unlike most countries, China refuses to release in detail how much weighting it gives different product categories when calculating inflation, a situation that World Bank senior economist Louis Kuijs called an “oddity.” An official with the statistics bureau said there has been no major change in the basket that makes up the price index since 2005. Plans call to adjust the weighting next year to reflect housing costs more and food prices less, said the official, who declined to be identified because of agency rules.

Chinese consumers, when asked, will detail how household expenses have changed in the past decade. Medical costs are the No. 1 concern for 84 percent of China’s rural residents, according to a recent survey by the Economist Intelligence Unit. Officially, medical prices are only up 2.8 percent so far this year. That number does not include the cost of gifts to hospital doctors and administrators to ensure adequate care.

Housing and rising rental costs also eat up more of Chinese budgets. For 26-year-old Beijing resident Wang Yulu, the monthly rent of her 35-square-meter one-bedroom apartment just increased more than 20 percent, to $338.

Too Expensive

“It’s too expensive,” said Wang, who works in the Beijing office of a Hong Kong advertising company. “I’m thinking of moving.”

Getting a handle on rising prices is a particular challenge in China. Hundreds of millions of rural Chinese keep moving to cities, pushing up rents and food prices in urban coastal areas. The prices charged by millions of restaurants, coffee shops, and fitness centers go largely unrecorded as entrepreneurs evade taxes. A standard foot massage, popular in Chinese cities, has risen from around $10 in 2008 to about twice that today, said Zoe Wang, a 29-year-old strategy consultant from Shanghai.

“Unfortunately, my salary didn’t double,” she said. Official figures only record a 0.4 percent rise in recreation and education costs this year. China doesn’t separate these two categories in its figures.

Residents in far-western China face higher prices in part because of the long distances products must travel to reach them. A fast-growing population of pensioners feels price increases much more acutely than others.

Pensions Spent

Said retiree Wei Mingxiang, 54, as she shopped carefully in Beijing’s Rundeli vegetable market: “Prices have gone up too far. My entire monthly pension of $147 is spent on food.” One staple, cowpeas, recently doubled in price in two weeks to 40 cents a pound.

By periodically releasing wheat, rice, and corn from its reserves, the government has avoided the 100 percent price surge that hit global grain markets in 2007 and 2008. Beijing continues to cap prices on everything from phone bills to water, electricity, and fuel prices, and when it wants to cool growth the government orders banks to stop lending.

“The government has tended to use less mainstream instruments that economists don’t like so much,” said Kuijs of the World Bank. “And they tend to use interest rates less.”

Deposit Rates

One-year deposit rates at 2.25 percent have not been changed since November 2008, which means Chinese savers are actually losing money now that inflation has passed 3 percent. Officials fear higher rates could draw speculative investors into China.

Some analysts said that Beijing is doing a decent job of calculating prices. Arthur Kroeber, the Beijing-based managing director of economic consultancy Dragonomics, estimated that actual inflation may exceed the official figure but by not much more than one percentage point. Kroeber added that a tightening labor market and rising wages will push China into higher inflation in the coming years.

Others wondered whether the historic aversion of China’s rulers to the political risks of inflation creates pressures to keep official figures low.

Factory Jobs

Similar pressures help explain how official unemployment targets of just over 4 percent were met in 2008 and 2009, when China’s factories laid off tens of millions of workers, some economists said.

“The government has made it quite clear” what its inflation target is for 2010, Tsinghua University management professor Patrick Chovanec blogged on Aug. 12. “A whole parade of official sources have issued statements over the past few weeks predicting, with the unruffled, enigmatic certainty one normally associates with a blackjack dealer dealing a fixed deck, that inflation will come in right at 3 percent this year.”

11 Aug 2010

GENEVA: World youth unemployment is set to hit a postwar record in 2010, increasing the potential for social unrest, crime and violence, the International Labour Organisation (ILO) said on Thursday.

According to the United Nations agency, just over 13 per cent of a global workforce aged 15 to 24 will be jobless by the end of the year, slightly above levels at the end of 2009 and a huge rise since 2007. That means 81.2 million young people of working age will be without a job, an ILO report said. Between late 2007, when the economic and financial crisis began, and the end of 2009, the number of young people out of work rose by 7.8 million against an average annual increase of 191,000 over the preceding decade.

“An inability to to find employment creates a sense of uselessness and idleness among young people that can lead to increased crime, mental health problems, violence, conflicts and drug-taking,” the report said.

It forecast youth unemployment would continue to increase in 2011, despite an expected global economic recovery, but at a slower place in all regions except the Middle East and North Africa, where it would continue to accelerate.

Worst hit were developing countries, where the overwhelming majority of young people live, and where the effects of losing or failing to find a job were likely to be much more dramatic. Young people in developed economies including the United States, the 27 countries of the European Union and former communist European states outside the EU are also seeing jobs disappear, the ILO said.

Between 2008 and 2009, unemployment rates among 15- to 24-year-olds in the main developed economies rose by 4.6 per centage points to reach 17.7 per cent of the total potential youth workforce at the end of last year, the highest on record.

The ILO forecast a slower recovery for youth employment than for adults. In a comment on the report, “ILO Global Employment Trends for Youth 2010″, the agency’s director-general, Juan Somavia, suggested that governments in rich and poor countries should focus on education and trainingt to tackle the trend.

“Young people are the drivers of economic development. Foregoing this potential is an economic waste,” he said.

Aug 11, 2010

LONDON: Rising grain prices from Russia’s drought and fires will pressure populations already hit by the financial crisis and could stoke unrest — particularly in the Middle East, North Africa and parts of Europe.

Wheat prices have risen by nearly 70 percent since June after Russia suffered its worst drought in 130 years and are at their highest since 2008, when the last major food price rally sparked protests and riots in a string of emerging nations.

Analysts warn that if prices stay high then the threat of street violence will increase — at least up to a point.

“We could see some street riots but I wouldn’t expect any governments to fall,” said Jonathan Wood, global issues analyst for consultancy Control Risks.

“On one level, we have much less of a problem than in 2008 because we have better food stocks. On the other hand, because of the financial crisis many countries are not in such a good position financially to deal with it.”

Particularly in emerging markets where food makes up a higher proportion of household purchases, the price rise could filter through in inflation, rate hikes and wider deficits.

The Middle East and North Africa, particularly Egypt, are regarded as particularly vulnerable, as are emerging and southern European countries where discontent has already been fueled by harsh cuts in public spending, benefits and pay .

“Grain imports are particularly sensitive in the Middle East and North Africa — bread is such a crucial staple of the diet,” said Metsa Rahimi, analyst at security consultant Janusian. “Eastern Europe is also an obvious area of risk.”

Europe has seen less social unrest than many expected from the financial crisis — although riots in Greece in May unsettled global markets — but risks are expected to rise in the autumn as unions call strikes and spending cuts bite.

Central and Eastern Europe have pushed through tough measures to qualify for IMF and European Union aid, but analysts see patience running thin, particularly in Romania. Spain, Italy, France and the Baltic states are also being closely watched.

Political weapon?

Much will depend on how long the price increase lasts and to what extent it filters through other commodities and foodstuffs.

That could swiftly bring angry mobs on the streets particularly in relatively poor authoritarian countries where maintaining food supply is seen as key to government legitimacy, they analysts said.

Russian Prime Minister Vladimir Putin was swift to impose an export ban, with the Kremlin likely to be keen to keep its silos full especially in the event of more damage to its winter crop.

“Adequate grain supplies have long been associated with social stability in Russia,” wrote security consultancy Stratfor. ”

Stratfor believes Russia may use the crisis to pull together nearby producers Belarus, Kazakhstan and Ukraine to form a regional grain cartel.

“Moscow very publicly has used energy supplies as a political weapon, either by raising prices or cutting supplies,” it said in a note. “Grain exports fall very easily into Moscow’s box of economic tools.”

Several key importers of Russian wheat including Saudi Arabia, Turkey and Jordan have been swift to say they have enough stocks and there will be no immediate impact on ordinary people. But they are nervous.

“The risks are always greatest where there are large numbers of urban poor and where food makes up more than 60 percent of the consumer purchase index basket,” said Alastair Newton, political analyst at Nomura.

“My top pick for potential trouble would be Egypt where tensions are already high with elections coming up and concerns about succession. Egypt has a long history of food price riots — but my guess is the main impact will be on the deficit as the cost of subsidies go up.”

Food prices and subsidies have always been notoriously political in Egypt, which faces elections next year with little clarity on whether 82-year-old President Hosni Mubarak — in power for almost three decades — will stand again.

Political risk premiums

There have been occasional scuffles at Ramadan food handouts in recent weeks and grumbling over raised pre-Ramadan prices but no repeat of the widespread protests seen in 2008.

The government met those first with a security clampdown then with the promise of higher wages.

Other countries being particularly closely watched for signs of unrest include Algeria, drought-hit Syria and already unstable Yemen.

In contrast, there is seen less immediate impact on Africa, in part because of stronger other staple crops particularly maize in the continent’s south. Nigerian food price rises have also slowed because of good local crops.

Even in West Africa’s Sahel — scene of a pre-existing food crisis — aid agencies say the Russian grain crisis and global price surge has had little local impact as yet.

But rising global prices could still put pressure on some recent land deals for food production in which Middle Eastern and Asian nations have bought up tracts of land in Africa and elsewhere including Ukraine and Pakistan for food. Hungry local populations might not like seeing food being trucked abroad.

The only major change of government linked to the last food spike was the 2009 coup in Madagascar, in which popular desire to overturn a South Korean land purchase was seen as a key factor.

Insurer Zurich believes food-related unrest worries will prompt more investors to seek protection against political violence damage and expropriation. That could push up premiums and the cost of foreign direct investment in affected markets.

“We would expect to see increased demand for our political risk products as a result of this,” said Dan Riordan, Zurich president for specialty products.

Analysis – Food squeeze next worry for emerging markets
Aug 5, 2010

LONDON (Reuters) – A food price crisis may be the next stumbling block for emerging economies, even as their bonds and stock markets rally in relief at an easing of the euro zone’s debt crisis.

Wheat prices have jumped by more than 50 percent since June and are likely to rise further due to expectations of tighter supplies, triggering concerns about a repeat of the food crisis in 2007/08 that forced interest rates higher in many economies and led to emergency controls in others.

The UN’s Food and Agriculture Organisation (FAO) cut its 2010 global wheat forecast by about 4 percent this week and said world wheat supplies may shrink next year if severe drought continues in Russia, Europe’s leading wheat producer.

Russia imposed a temporary export ban on Thursday in response to a record-breaking heatwave and the extent of the damage to crops and its economy is only beginning to become clear.

Spiralling wheat prices could translate into higher inflation and possibly higher interest rates in emerging market economies, which tend to hold a large proportion of their consumer price baskets in food.

The FAO said healthy world stock levels should prevent a repeat of the crisis of 2007/08 but past squeezes on food have led some central banks to hike aggressively in a bid to head off a second round of price rises in their economies.

Analysts and investors are already preparing for tighter monetary policy in emerging economies, even as they look to the possibility of further quantitative easing in the United States.

“It is a big deal for emerging markets, though maybe not as big a deal as it was in 2006/7/8, as food prices make up 20-50 percent of emerging CPI baskets,” said Charles Robertson, EEMEA chief economist at ING.

“Food prices never move in the U.S. as a result of changes in global harvests, because so much of the price of food is taken up by packaging, suppliers. In the EU, food prices move a little bit but in emerging markets, food price rises can add a few percentage points to the inflation rate.”

RUSSIAN RATES

Countries likely to be particularly at risk from high wheat prices include Nigeria, which has 25 percent of its CPI basket in bread and cereals, Robertson said.

Western economies typically have less than 20 percent of their CPI basket in food, compared with 30 percent on average in emerging markets, according to U.S. bank Morgan Stanley.

In Russia, higher wheat prices are contributing to speculation that the central bank will raise interest rates as early this year, after cutting 14 times since April 2009 to a record low refinancing rate of 7.75 percent.

Annual inflation in Russia is 5.5 percent.

“We see more upside risks…even a 15 percent inflation rate next summer does not seem unthinkable,” said analysts at Danske in a client note.

Some central banks have already responded.

In India, a year-long spell of double-digit inflation, largely on rising food prices, sparked massive street protests.

One of a small but growing number of economies to have started raising interest rates, India has lifted its main lending rate four times by a total of 100 basis points since March, to 5.75 percent. Analysts say there is more to come.

However, an end to the El Nino weather pattern which led to the food price spike in India may actually reduce food price inflation in India, analysts say.

CURRENCY BOOST

Higher inflation and higher interest rates tend to depress bond prices and can also affect corporate lending, eroding stock market gains.

Investors have flocked into emerging market debt this year, keeping spreads below the key 300 basis point level over U.S. Treasuries, in their search for higher yield without exposure to even riskier emerging equities. Any whiff of inflation is likely to turn those debt investors more cautious.

But currencies find an upside in higher rates, due to the relative appeal of holding deposits in higher-yielding markets.

The Ukrainian hryvnia, which has already shown some appreciation in recent months due to an improving economy, is singled out by analysts as likely to rise further.

The rouble may also be allowed to rise if Russia has to import grain, although Russian prime minister Vladimir Putin on Thursday imposed a temporary grain export ban.

“Countries that import food could be more open to allowing their currencies to appreciate in order to cope with higher food prices,” said Elisabeth Gruie, emerging market strategist at BNP Paribas. “Eastern European countries such as Poland will be sensitive to the impact on higher food prices on inflation and could react by adjusting monetary policy.”

Fuel and food prices took inflation to multi-year highs in central Europe in 2008, prompting rate rises, and there were also protests against rising food prices in many emerging market countries.

To grapple spiking food price inflation, several emerging food exporters, including Russia, Ukraine and Kazakhstan, introduced export duties in early 2008. Russia had already imposed price controls on basic foodstuffs in Oct 2007.

Wheat prices can also lead to higher prices of other food, as consumers switch to buying more rice, for example, putting upward pressure on currencies in the Middle East and Asia.

“Places like Egypt, India, Indonesia and the Philippines are pretty big importers of food,” said Philip Poole, head of macro and investment strategy at HSBC Global Asset Management.

“Consumers are moving up the food chain in emerging markets, literally, that’s putting the pressure on.”

Russia Will Tighten Security Over State’s Grain Stockpiles During Drought
By Maria Kolesnikova -

Russia is boosting security over the state’s 9.5 million metric tons of grain stockpiles as the worst drought in at least half a century erodes yields, said the government agent overseeing the reserves.

“United Grain Co. has introduced additional security measures for grain in the state intervention fund,” the agent said in an e-mailed statement today. “The role of state stockpiles in the domestic market is increasing as the situation in the Russian grain market becomes more acute because of wildfires and drought in more than 25 regions.”

Russia yesterday set a ban on grain and flour exports from Aug. 15 to Dec. 31 and published the order in the state’s newspaper of record today. Russia forecasts this year’s grain crop at between 70 million and 75 million tons, while domestic consumption stands at 75 million tons. The country has 21.5 million tons in reserves, including the state’s stockpiles.

(AFP)

BRUSSELS — European austerity measures to tackle the soaring debt crisis have sparked “despair” and will cut too deep, a senior trade union official warned Friday, as he announced a protest action day.

John Monks, head of the European Trade Union Confederation, who met EU and employers’ officials in Brussels, said there was “despair and alarm at the prospects of growth in Europe as all countries, not just those in distress, move to cut their budgets, cut public expenditure.”

“We don’t want a bleak mid-winter for the unemployed,” he added, pointing out that already there was “quite a bit of social unrest in some countries” over the kind of deep cuts in public spending, including salaries, pensions and benefits.

Rioting has been particularly fierce in Greece where the government is making deep cuts after being afforded a multi-billion euro bailout by the EU.

Monks said plans were underway for a European “day of action” on September 29, with the focal point a protest at a meeting of EU finance ministers scheduled the same day in Brussels.

Work stoppages were a possibility on that day “to keep pressure on the growth agenda,” he stressed.

EU Commission chief Jose Manuel Barroso said the talks had been tough and “very open” but insisted on the need for the austerity measures as Europe emerges from the worst recession since World War II.

“I underlined the need for fiscal consolidation and structural reforms,” he told a joint news conference with Monks.

“Only if we are serious about getting our house in order, and only if we really do our best to work for a sustainable future, will we be able to re-establish confidence in our economy and growth,” he added.

“Without determination to act now, we put our European model of society at risk,” he told reporters.

Philippe de Buck, director general of the Business Europe employers’ group, called for restraint and social dialogue.

“The last thing we need is continued social unrest This is a way to undermine confidence,” he warned.

Bernard Thibault, head of France’s main union federation the CGT, said workers were “the main victims of a crisis which they were not responsible for,” something which he said justified their protest action.

He said dialogue with Barroso was not fruitful as the EU leader justified the austerity plans due to national debts.

26.05.2010
Experts are concerned that the continuing financial crisis and associated austerity measures could lead to global social unrest should conditions worsen and populations lose faith and patience in their governments.

At the end of 2008, Secretary General of the United Nations Ban Kin-moon painted a grim picture of the future when he said that the financial crisis – which was just beginning to have a global impact – could lead to social unrest and political instability and could exacerbate many other problems facing humanity.

The UN chief warned that “today’s financial crisis will become tomorrow’s human crisis” and that the shockwaves from the financial crash, if not handled properly, could “compound other major threats such as climate change, food insecurity and the terrible persistence of extreme poverty.”

A month later, Dominique Strauss-Kahn, the head of the International Monetary Fund (IMF), said that “social unrest may happen in many countries – including advanced economies” if governments failed to adequately respond to the financial crisis.

In May last year, in the midst of the collapse, Robert Zoellick, head of the World Bank, also warned that the global economic crisis could lead to serious social upheaval. “If we do no take measures, there is a risk of a serious human and social crisis with very serious political implications,” he said.

Greece unrest could provide the spark

With debt-ridden Greece experiencing periods of strikes, protests and riots, and other governments around the world beginning to feel the anger of societies railing against them, the human crisis of tomorrow that Ban Ki-moon spoke of two years ago looks closer today than at any other time since this current financial crisis – the worst since 1929 – began.

Hundreds of thousands of demonstrators have been mobilized across Greece over the past few weeks by left-wing parties and trade unions protesting the austerity measures agreed by the Greek government with the European Union and the IMF.

According to those organizing the protests, Greece is a tinderbox. “We expect a social explosion some time soon,” Ilias Iliopoulos, secretary general of the Greek public sector union ADEDY, told reporters. “The possibility of the IMF asking for more measures will trigger this.”

Governments brace for popular revolt as crisis deepens

The situation in Greece is not only making international markets and financially fragile European governments like Spain, Portugal and Italy nervous, but nations all around the world are concerned about rising social discontent over the handling of the crisis.

Spain’s largest union Comisiones Obreras (CCOO) has been talking about calling a general strike to protest against the Spanish government’s planned austerity measures while fears abound that unrest like that seen in Greece may follow.

There have also been recent public demonstrations against perceived government incompetence and financial irresponsibility in Britain, France and Russia, while the ruling elites in Japan, Brazil, Israel, Canada and the United States have all seen protestors take to the streets.

In the Balkans and Eastern Europe, there were large strikes last week in Slovenia, Albania, Croatia, Bulgaria, and Romania – which also saw its largest public protest since the fall of communism.

Thailand, of course, has seen some of the worst violence with banks set on fire, major department stores attacked and protestors staging running battles with armed police and the military. The protests against the growing divide between rich and poor and the perceived corruption of the government has also led to a number of deaths.

Prolonged crisis stokes fears of global instability

There is a feeling among experts that the deep anger brewing in these countries is fermenting worldwide against the same institutions, the same people, and the failure of global capitalism.

In the United States, Director of National Intelligence Dennis C. Blair caused a storm when he wrote in a report to the Senate Intelligence Committee that economic crises increase the risk of regime-threatening instability if they are prolonged for a one- or two-year period, adding that the United States would not be immune to the unrest currently being experienced in Europe.

“Instability can loosen the fragile hold that many developing countries have on law and order, which can spill out in dangerous ways into the international community,” he wrote.

“What’s happening in Greece will spread worldwide as economies decline,” Gerald Celente, financial and political trends forecaster and publisher of the Trends Journal, told Deutsche Welle. “We will see social unrest growing in all nations which are facing sovereign debt crisis, the most obvious being Spain, Ireland, Portugal, Italy, Iceland, the Ukraine, Hungary followed by the United Kingdom and the United States.”

The potential for widespread social unrest in response to the continuing financial crisis has many experts fearing the worst for the world’s current political and social structures with dramatic, perhaps catastrophic, changes ahead.

Continuing unrest could lead to dramatic scenarios

“We could see a rise in power of extreme right governments, secessions of some of the bigger states in the US and more devolution of powers to Scotland, Ulster and Wales in the UK,” Marie-Hélène Caillol, president of the European Laboratory of Political Anticipation, an economic think-tank told Deutsche Welle. “A similar risk, though in the longer term, exists for China whose growth cannot survive a chaotic evolution in the rest of the world.”

Gerald Celente has an even bleaker, succinct opinion of where the spread of social unrest could lead: “War. It’s as simple and as horrifying as that.”

Contrary to some claims that the current wave of unrest is being driven by anarchist and far-left agitators intent on bringing down the global capitalist order, Caillol and Celente believe that its a reaction to a broken system by angry and betrayed citizens of the world.

“Public discontent combined with the lack of centripetal political guidance results in the rise in power of centrifugal forces of all sorts,” said Caillol. “This crisis is directly connected to the end of the world order as we know it since 1945 – and even earlier since the European colonization process. Therefore, the whole global fabric centered on the US for 60 years is slowly collapsing, generating turmoil of all sorts.”

“There are no organizations behind this response – it’s a public response,” said Celente. “This is a 21st century rendition of the ‘workers of the world unite’. The people are fully aware of the enormous bailout going to the ‘too big to fail’s’ that they are being forced to pay for. The higher the taxes go, the more jobs that are lost, the greater the levels of protest.”

The blockade at the Kulata – Promahon border checkpoint has resumed since 3am on February 4 2010, the Bulgarian news agency BTA said.

The barrier of tractors was lifted at 10pm the night before and all the vehicles that were stranded, including around 1250 lorries, buses and private vehicles were allowed to pass through.

Bulgarian authorities said the situation at the remaining three checkpoints, Ilinden, Zlatograd and Captain P Voivoda, since midnight has been normal for all traffic. However, there was information that most likely the Ilinden – Exohi checkpoint would be shut after 10am.

It is for the moment unclear if the checkpoint will be shut only for lorries or all vehicles. There is no information that Ilinden and Zlatograd are facing closure later on February 4, for the moment they are operating freely, though some fear that there might be a total blockade enforced later on.

If the warning released by the Greek border police on February 3 is anything to go by, then the outlook for February 4 and 5 forecasts even bigger queues and headaches for motorists, tourists, and lorries.

Greek border police announced that they would join their country’s farmers and launch a strike of their own, closing all Greek border points on February 4 and 5, Bulgarian media reported on February 3 2010.

This came only a day after European Commission president Jose Manuel Barosso declared that the EC would implement “all legal means possible” to ensure that the movement of goods and services across the border was not obstructed.

Greek border police cited discontent with their government’s policies on a number of issues, including taxation.

The Macedonian foreign ministry received an official warning from the Greek border police that its borders will be shut for two days. No such warning was apparently given to the Bulgarian Foreign Ministry.

The Romanian and Macedonian foreign ministries have warned their citizens to “avoid travelling to Greece” in response, Dnevnik daily reported.

While the blockade by Greek farmers and the strike by border police are not directly connected, both groups have expressed their disapproval of the Greek government.

December 17
Greece on Thursday accused Standard & Poor’s of failing to “assess correctly” new moves by Athens to tackle its swollen budget deficit, following a downgrade by the ratings agency of Greece’s long-term sovereign debt. Read more…

As home values continue to show declines compared to a year ago, the percentage of South Florida homeowners underwater in their mortgages grew between the first and second quarter of the year, figures from Zillow.com show. Read more…

The US firm Molex has shut a car parts factory in southern France on grounds of “security” after angry workers allegedly assaulted a manager. Read more…

By DEDRICK MUHAMMAD and BARBARA EHRENREICH

To judge from most of the commentary on the Gates-Crowley affair, you would think that a “black elite” has gotten dangerously out of hand. First Gates (Cambridge, Yale, Harvard) showed insufficient deference to Crowley, then Obama (Occidental, Harvard) piled on to accuse the police of having acted “stupidly.” Was this “the end of white America” which the Atlantic had warned of in its January/February cover story? Or had the injuries of class – working class in Crowley’s case – finally trumped the grievances of race? Read more…

The recession numbers focus on the out of work, the nearly 10 percent of the workforce who are unemployed. Not counted in the stats of workplace misery are those still “lucky to have a job.” Read more…

In France annual riot, hundreds of cars torched
15 Jul 2009

About 10,000 police officers were deployed in major French cities, but some 317 cars were torched and at least 13 police officers were injured during street battles that emerged on the eve of the national day, local media reported on Tuesday. Read more…

July 6 (Bloomberg) — Russia may face outbreaks of labor unrest last seen in the 1990s as manufacturing slumps at a record pace and companies struggle to pay employees, according to a study by Moscow’s Higher School of Economics. Read more…

By Ambrose Evans-Pritchard

One of my odd experiences covering the US in the early 1990s was visiting militia groups that sprang up in Texas, Idaho, and Ohio in the aftermath of recession. These were mostly blue-collar workers, – early victims of global “labour arbitrage” – angry enough with Washington to spend weekends in fatigues with M16 rifles. Most backed protest candidate Ross Perot, who won 19pc of the presidential vote in 1992 with talk of shutting trade with Mexico. Read more…

July 4 (Bloomberg) — Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars. Read more…

By Don Lee ( LA Times)
July 4, 2009
Reporting from Washington — Just as the nation’s housing market has begun showing signs of stabilizing, another wave of foreclosures is poised to strike, possibly as early as this summer, inflicting new punishment on families, communities and the still-troubled national economy. Read more…

Unemployment in the 16-nation eurozone has climbed to 9.5 per cent, its highest rate in a decade, EU data shows. Read more…

With the authorities showing lack of perspective planning and failure to deal with the incessant water problems letting parts of Hargeisa, the capital city, reel under severe water crisis, residents have resorted to staging agitations as the only ultimate weapon to get a solution. Read more…