Wednesday, January 23, 2008

The roof

"Not to be outdone, wheat, coffee, hogs, rice, fruit juice, cotton and corn prices have risen considerably. Grains like wheat, rice and corn -- especially the wheat -- have scaled new heights. Whereas in the 1990s wheat was selling at about US$2.35 a bushel, its price now is about US$4.60 a bushel.

All of this is happening because of the rising populations in China and India and worldwide vagaries of the weather. Moreover China and India now have cash to pay for their grain purchases.

India set a new record for wheat production in 2006-07 at 76 million tons. But India is still importing wheat. The reason is that India is rebuilding its buffer stock, which had been depleted over two previous bad seasons. Domestic production is not enough to rebuild the stock in one year, so imports are necessary.

China is in a similar situation, although its statistics of production and consumption are not reliable. This is driving wheat prices up and allowing exporting nations to reap big rewards.

In the long run, strategic factors may force India and China to take a more serious look at increased mineral production, but the immediate future is less rosy. The same is true of agriculture. As China has polluted its environment and land, and India has not aggressively dealt with land reform and subsidies, foodstuff imports by both will continue. This will continue to drive up food prices all over the world.

What the world should worry about today is the future food supply. Rising populations will demand food, which can only be grown in fields irrigated with clean water and supplied with other input. If water is polluted and land is in short supply, the population will starve. Food and water wars will begin. This scenario, no matter how unpleasant, looks possible in 50 years when the world's population reaches 10 billion.

In short, rapid industrialization of the less developed world has forced up demand for all commodities. This is translating into high prices and prosperity in the resource-producing countries. But there are limits to this prosperity. As the resources run out one by one, these countries will find themselves at the short end of the stick. The immediate tasks, therefore, should be conservation, environmental care and population control."

From: World commodity markets hit the roof, UPI AsiaOnline.

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