Just a few months after the appearance of the pandemic, the world has stepped foot into a crisis not seen for 50 years—the food shortage crisis. Unfortunately, China, the U.S., and Europe are sinking deeper and deeper into this crisis, especially with China because the tolerance threshold of a quarter of its population amongst rising food prices is much lower than that of the U.S. and Europe.
The food price index has increased since the first half of 2020 as the epidemic has affected the global economy. As a result, the Food and Agriculture Organization of the United Nations (FAO) said that the FAO Food Price Index (FFPI) averaged 130.0 points in Sept. 2021, an increase of 1.5 points (1.2%) compared to August and 32.1 points (32.8%) over the same period last year. The FFPI’s latest increase was mainly due to higher prices of most grains and vegetable oils. On the other hand, milk and sugar prices were more stable, while the meat sub-index remained stable.
According to the FAO, world food prices rose in May at their fastest monthly rate in more than a decade, rising for 12 straight months, reaching their highest levels since Sept. 2011. As a result, food prices adjusted for inflation have almost reached the level of the food crisis period of the 1970s (50 years ago).
It can be seen that the impact of the pandemic on the world economy has led to a rapid increase in food prices. Moreover, it is expected that if the pandemic is not contained in a short time, food prices will continue to increase.
The main factors driving food prices up are rising global transportation costs due to the coronavirus pandemic. The pandemic has pushed more than a dozen countries, including Vietnam, Kazakhstan, and the Eurasian Economic Union, to plan new food export restrictions. Vietnam is suspending signing new rice export contracts. Cambodia banned the export of white rice and rice, only allowing the export of fragrant rice. Kazakhstan, on the other hand, will implement a quota system for wheat exports and flour. And India, the world’s largest rice exporter, was hit by the country’s strict shutdown, bringing agricultural exports to a halt.
Another primary reason for rising food prices is that many countries have faced severe natural disasters.
Brazil, the world’s biggest food exporter, suffered a drought of the century this year, dealing a blow to agricultural production. Just before the drought, during wintertime, from late June to late September, Brazil was affected by frost. The lowest temperature in Brazil’s largest coffee-producing state dropped to -1.2°C. Frost once again raised the coffee prices. According to a Reuters report on July 26, the cost of arabica coffee increased by 10% that day, while it increased by almost 20% in the previous week. In just a few days, the price has risen by more than 35%.
Due to the production-slashing weather, the price of Brazilian coffee beans has tripled this year. But the situation is still challenging. Last December, the cost of Brazilian coffee was around $77 per 132-pound bag, but now the price has doubled and is expected to continue rising. Furthermore, due to rare droughts in the United States, Canada, Brazil, and other countries this year, the production of wheat, soybeans, and other agricultural products has also decreased, putting enormous pressure on the global food market.
From the beginning of the year to Aug. 2021, global food prices have increased by 34.9%. The current CRB food price index has reached 488.58, just 5.1% from the historic peak, showing that “the battle is very fierce.”
China is the most passionate global food hunter
The fall in global food production and the sharp rise in food prices caused many net food importers to panic and rush to buy food worldwide. So naturally, China is one of the biggest buyers.
Last year, China had a grain stockpile inspection wave. During the inspection, numerous fires occurred at grain warehouses across the country. The fires are said to erase traces of real food shortages and severe corruption among CCP officials. As a result, several Chinese provinces have rushed to sign treaties that will provide food aid to each other in an emergency.
Although China’s trade with Australia is at a standstill, China is still accelerating its purchases of Australian wheat, as wheat production in other countries has declined, leading to a global shortage. China punishes Australian coal by banning it but eventually kicking itself in the foot, and the power shortage crisis is getting worse in China. It’s believed that China does not dare to impose sanctions on Australian wheat; otherwise, it will be more severely affected.
As China begins to buy aggressively, Australia, as the world’s major food supplier, is expected to have a bumper harvest for the second year in a row. Meanwhile, wheat yields in other countries are expected to decrease as production in the Northern Hemisphere was damaged by extreme weather and drought.
As the world’s largest importer of agricultural products in this prolonged trade dispute, China has imposed anti-dumping duties on Australian wine and barley while reducing coal and beef purchases from Australia. However, wheat prices are hovering near an eight-year high, so China is looking to buy wheat everywhere.
According to three traders and one analyst, China has become Australia’s leading wheat buyer for the coming season. In 2021-2022, Australia has sold about 5 million tons of wheat, of which nearly 2 million tons have been sold to China. These wheat crops will be harvested at the end of the year.
In August this year, global wheat prices rose to their highest levels since 2013. Bad weather in Russia and dry weather in the U.S. and Canada led to a production decline in major exporting countries.
Benchmark Chicago wheat futures traded at $7.17 a bushel last Friday, Oct. 15, close to an eight-year high set in August of $7.75 a bushel. According to industry sources, the deterioration of wheat quality in exporting countries such as France has exacerbated China’s supply problems. As a result, China has canceled several shipments of French wheat in recent weeks.
Life-sustaining’ threshold’ is rising, starting to destroy ‘under-threshold’ countries
Severe weather and disease have affected agricultural activities—significant production cuts in major agricultural exporting countries such as Brazil and Canada are inevitable—and agricultural prices have increased. Therefore, a continuous decrease in production is inevitable. In the last 12 months, the FAO Food Price Index has risen by almost 40%, but what does this mean?
Firstly, rising prices of agricultural products, and other commodity prices, will push up interest rates in the future, eventually making people indebted.
Second, the “threshold” for maintaining basic survival is constantly increasing, and food is not available to eat. For example, if a country’s minimum wage is set at $156, and spending on basic food is $125 (called the “threshold”), they can maintain their basic survival. Still, if the food price index increases by 40%, the “threshold” will increase to $175, the minimum wage will not be enough to satisfy, and society will be disordered.
Now, rising “thresholds” have destroyed South Africa and Cuba. Due to extreme weather, the “threshold” will continue to increase in the future. Whenever the “thresholds” exceed the basic income of the people of a country, it destroys the country.
Rising inflation causes interest rates to rise, making people’s debt and interest rates heavier, but commercial banks also do not dare to continue lending to this group of people. Since there is no way the chain of debt can continue to return to the original, the family’s survival pressure will increase significantly. As a result, the higher ‘threshold’ ruined the lives of more and more low–and middle–income groups, and social anarchy began.
Compared to the U.S. and Europe, China’s ‘threshold’ to maintain basic life is much lower. Although China is large, the average income is lower than the U.S. and Europe, not to mention the state of discontent because of severe income inequality while social welfare is hardly secure. What if the food price exceeds the survival threshold of nearly 1 billion Chinese people? It certainly does not just create social chaos but also challenges the survival of the CCP, which Beijing fears the most.
Get rid of the life-sustaining ‘threshold’
Faced with such a situation, to save their political destiny, what will the leaders do?
Firstly, of course, is the reallocation of land by landowners. Although the method will have many differences, it will create a global wave. It comes from the fact that as the asset becomes more even, the resistance to rising “thresholds” increases, which is obvious.
Different countries have different ways of dealing with land allocation, which depends on the country’s traditional culture. The differences will determine the future of each country. For example, China’s “beatings” of landowners, lashing out at Internet giants, cracking down on monopolies, and beginning to confiscate private property and nationalize companies have been evident over the past two years. For example, the education and training industry, the Internet industry also have such signs. Due to slowing economic growth, the pie is no longer ample, so the only way is to redistribute shares because this is the basis of the stock system.
Second, since the constantly increasing “threshold” is the source of social unrest, stabilizing food prices, including fuel prices, can solve the problem because this approach can force down “thresholds” to under the basic income level, stabilizing the basic life of low- and middle-income groups. So this is the period when the price system is most likely to be revived, as it is a lifesaver. Currently, China is embarking on this path to reduce the risk of a food crisis.