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reflections

Aug 28, 2012 | 06:38 GMT

The Grain Market and the State

(Stratfor)
It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.

The United States, Mexico — which is currently chairing the G-20 — and France held a conference call Monday to discuss a report requested by France on food prices. They also discussed whether G-20 states should hold an emergency Rapid Response Forum in order to coordinate trade policy on food amid a growing grain shortage. Countries and commodity traders all over the world are awaiting the mid-September release of the report, compiled by the Agricultural Market Information System, before they determine their next steps in dealing with the food crisis.

While farmers on the Indian subcontinent are still dealing with the consequences of a late monsoon season, the American heartland is experiencing the worst drought in more than half a century. As a result, wheat, corn and soybean prices are approaching all-time highs. Drought and flood conditions in Russia, Kazakhstan and Ukraine, along with the looming threat of wildfires in the Russian grain belt, are meanwhile provoking fears that the world's third-largest wheat producer will decide to ban exports — as it did in 2008 and 2010 — and pressure its grain-producing neighbors to do the same. This would leave grain consumers in politically volatile parts of the world vulnerable to harmful consequences.

Though the hit to the grain markets so far does not appear to be as severe as the food crisis four years ago, G-20 leaders are trying to avoid exacerbating the current situation; they are encouraging trade policymakers around the world to keep cool heads and avoid the kind of market speculation and food hoarding that will dwindle supply, drive up prices even further and lead to food riots. But food policy is not particularly conducive to a multinational, good-faith effort. There's a reason the G-20’s Rapid Response Forum doesn't have the authority to issue anything beyond recommendations.

The grain trade represents geopolitics in its most primal form. People need food to eat. States need to grow and distribute food to feed their people. States with naturally integrated river systems and abundant farmland have a much easier time feeding their people and supplying overseas markets. Even in times of severe drought, the lands fed by the arterial Mississippi River generate massive supplies of staple grains for the United States and its global clientele. States with harsh climates, poor soil and uncompromising geography between their farmland and population centers will generally have a much harder time keeping their populations fed and will thus have to resort to more extraordinary measures to hold onto power.

Russia's urban core lies in Muscovy on the North European Plain, while the Russian breadbasket, supported by the Volga River, lies farther south, from the Black Sea across the northern Caucasus to western Kazakhstan. A Ukrainian or Kazakh farmer in the southern grain belt isn't likely to relate to Moscow the way an urban resident of St. Petersburg does, which means sometimes extreme measures have to be taken to ensure that food reaches markets. In the 1930s, Josef Stalin collectivized peasant farms and literally starved the countryside. Today, Russia has created a Customs Union to try to fold Ukraine, Kazakhstan and Belarus into a trading bloc that would give Moscow heavy influence over the grain trade in the former Soviet periphery. By establishing control over these countries' wheat exports, Moscow would effectively control 15 percent of global wheat production and 16 percent of global exports. There is a reason Lenin at one time referred to grain as "the currency of currencies."

When food supply is in question, it is very difficult to imagine any state putting another state's interests before its own. In the same way that Russia banned wheat exports in 2010, India banned rice exports in 2008; meanwhile, large delegations of Arab and Asian businessmen have been buying up farmland abroad in an effort to procure a safety net for their own countries' food production. A state will do whatever is necessary to feed its people, without much regard for needs elsewhere around the globe.

These kinds of food scares will be a chronic occurrence for the next decade or so. Weather fluctuations, biofuels development and food stockpiling for growing populations will continue to stress a global food supply produced by only a handful of major grain exporters. Technological advancements have improved crop yields and expanded global trade in foodstuffs. This has allowed the kind of development that has fueled population growth so rapidly that developing countries have outstripped their own production capacity, leaving them all the more vulnerable to unexpected fluctuations in the grain markets.

A more extended look into the future, however, may paint a different picture. Birth rates in much of the world are collapsing, as urbanization is leading women to have fewer babies and at older ages. The developing world is only three generations behind the developed world in this trend. The world is not destined to see ever-increasing population growth outstrip the global food supply. With more manageable populations, states will regain some capacity to manage their food sources, making them less vulnerable to seasonal fluctuations and the political whims of major grain exporters. Until then, summits to coordinate global food policy will likely be called for and held in vain.

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