Dyer: Global food shortage will hit economic forecasts

"On a finite planet with dwindling resources and a changing climate, the cost of meeting consumer demand is going to go up very steeply. It is probably going to get very ugly out there," writes Gwynne Dyer. Photo Credit: Donna Grethen / Tribune Media Services

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In the spring, the U.S. Department of Agriculture forecast the biggest corn harvest in history. After two months of record heat and drought in the Midwest, the agency now says this season's yield will fall to its lowest level since 1995. The price per bushel of corn exceeded $8 for the first time in history this month. The USDA says it could go as high as $8.90.

There's also a heat wave this summer in Russia. Though nowhere near as bad as the one in 2010, it's cutting deeply into Russian wheat production. There will still be enough for domestic consumption, but Andrei Sisov of the Moscow-based farming consultancy SovEcon said recently that he expected Russian wheat exports to drop from 28 million tons to only 13 million. For this and other weather-related reasons, wheat prices are on their way up, too.

High wheat prices hit human consumers directly, but high corn prices hit even harder in the long run, because huge amounts of corn are used to feed animals and provide oil for processed foods. World food prices in general are on the way back up, and it's beginning to look like a pattern, not a series of accidents.

The last big price spike, from 2007 to 2009, had a huge impact in developing countries, where many people spend around 40 percent of their income on food -- compared with only about 10 percent in developed countries. If you're already spending almost half your income on food and the price soars, you just have to give your children less food. That's why some people see the revolutions of the "Arab Spring" as delayed reactions to the last spike.

Meanwhile, on a different planet entirely, the McKinsey Global Institute, the business and research arm of management consultancy McKinsey & Company, published a new report in June. It's the latest in an endless series of ever-bolder estimates by various global institutes of how fast the demand for goods and services is growing around the world.

The themes of McKinsey's "Urban World: Cities and the Rise of the Consuming Class," are familiar enough: The world's economic center of gravity is moving to Asia; huge numbers of new consumers -- people with average annual incomes over $3,600 who buy more than just food and basic shelter -- will be joining the global market by 2025; there are wonderful opportunities out there for clever investors.

The only new wrinkle in this document is the bit about how 65 percent of global growth by 2025 will happen in the "City 600," as McKinsey calls it, the world's 600 biggest cities. And what McKinsey has deemed the "Emerging 440" -- those cities among the 600 that are in the rapidly developing countries -- will account for almost half of the total growth in world demand by 2025.

As the emerging economies grow, the report suggests, their populations will all start buying fridges and baby food and, eventually, cars.

Yet nowhere in the report does McKinsey deal seriously with the impact of a predicted total of 2.6 billion consumers, up from only 800 million now, on world demand for food. Meat consumption soars as incomes rise. And since feeding animals to produce meat puts huge pressure on grain resources, all food prices rise, for rich and poor alike.

Combine the rise in meat consumption with an extra billion people and severe constraints on food production, most of them related to climate change, and world food prices in 2025 could well be two to three times higher in real terms than they are now. That means that the poorest starve, and that a lot of the promised new consumers -- those who can spend on things other than sheer survival -- don't make it into the middle class after all.

The same rationing by price is likely to apply to everything else that matters. Indeed, the prices of energy and raw materials, which fell consistently through most of the 20th century, are already back up to where they were in real terms a century ago. There aren't likely to be 1.8 billion new consumers in 13 years' time. The poor will be more desperate than ever -- and political stability in many developing countries will be just a memory.

The demands of consumers, like the sheer number of human beings, can in theory expand indefinitely. But on a finite planet with dwindling resources and a changing climate, the cost of meeting consumer demand is going to go up very steeply.

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