Food supplies in crisis

Food supplies in crisis

August 13th, 2012 in Opinion Times

The current drought already has produced a rash of bad news - for the farmers it directly affects, for U.S. consumers who can expect to pay higher food prices in coming months, and for many developing nations that already find it difficult to pay rising costs propelled by precipitous declines in commodity supplies. The news got worse late last week. The U.S. government again cut its estimate of the nation's annual corn and soybean yields. "It's scary when you see the numbers ..." one analyst said.

There's reason for such pessimism. The Agriculture Department said Friday that the U.S. corn yield will be about 123.4 bushels an acre. If that proves the case, it would be the lowest in 17 years. In the same forecast report, the government put the soybean yield at 36.1 bushels an acre, almost 5 bushels an acre below last month's estimate. Wheat harvests will decline, too. Crop yields could fall even more, many experts say.

If that happens, the impact will be considerable. In July, Agriculture Department experts warned Americans that food costs would climb 4 to 5 percent next year. Given Friday's numbers, that scary estimate could rise. We'll know more on Aug. 24, when the department will provide updates of its price estimates.

Whatever the numbers then, it's a certainty that consumers will pay more in coming months for milk, meat and poultry, for baked goods and processed foods. Shortfalls in corn, a major component of everything from animal feed to the sweeteners used in processed foods, will produce a major bump in prices. U.S. consumers, already buffeted by a difficult economy, will be hard-pressed to meet the higher prices in many instances.

The same is true for global markets. The United States produces about 40 percent of the world's corn and soybeans, and about 20 percent of its wheat. Projected reductions in U.S. commodities will be costly for overseas customers.

More of what is harvested will remain at home. The much diminished portion of the crop available for overseas sale will be more expensive. That could lead to significant unrest. Food shortages in 2008, for example, prompted major protests and government crises in many developing nations.

While there's little than can be done directly about lower crop yields, there is one way to increase the availability of corn. The Renewable Fuel Standard, which became law in 2005, requires that much of the nation's corn crop - about 40 percent -- go to ethanol producers. The goal was to reduce greenhouse emissions and the nation's dependence on foreign oil, though there is considerable debate about the efficacy of the program on either count.

Given that, waiving standard ethanol requirements during the drought crisis, and perhaps beyond, makes sense. Doing so would increase the amount of corn on the market and reduce the rising pressure on food prices here and abroad. That won't end the crisis caused by the drought, but it would help ameliorate its harshest effects.