Friday, February 4, 2011

Spending grain stockpiles to ward off unrest

"Events in Egypt may turn out to have a greater impact on other commodities, notably food. High food-price inflation has cut spending power across emerging economies (seearticle), where keeping bellies full accounts for a much larger share of income than in rich countries. The high cost of food is one reason that protesters took to the streets in Tunisia and Egypt. The price of bread has shot up since last summer when a drought in Russia, one of the world’s largest wheat suppliers, hit harvests and prompted an export ban.
Analysts at Goldman Sachs point out that countries in the region may feel the need to head off political instability by spending to stockpile grain. Saudi Arabia, Algeria and Jordan have all stepped up efforts to build stockpiles. This could raise the pressure on other countries to hoard wheat, pushing prices even higher. In the short term this might even result in lower oil prices if OPEC countries pump more out of the ground to raise cash to assuage uppity populations."

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