By Shenggen Fan, Director General, International Food Policy Research Institute (IFPRI)
August 6, 2012— Below-normal rainfall and above-normal temperatures have contributed to the most severe and extensive drought in the United States since the 1950s. Spanning over half the country, the severity of drought conditions increased dramatically since early July, adversely affecting the production of maize (yellow corn) and soybeans, driving up agricultural prices, and increasing the volatility of those prices to excessive levels.
F According to the Economic Research Service of the US Department of Agriculture (USDA), 62 percent of US farms are located in areas experiencing drought. About 40 percent of maize and soybeans and 44 percent of livestock are produced in areas experiencing severe drought.
As a result, national crop yield and harvest estimates for maize and soybeans have been lowered considerably. Experts suggest that crop losses for maize are coming close to 20 percent and could reach 30 percent or more if extreme drought conditions persist. Prices of maize and soybeans have already started to rise rapidly and could increase further depending on the degree of severity and extent of the drought.
In the past two months alone, US export prices for maize and soybean increased by 30 and 19 percent respectively, with prices for both crops reaching record highs.
Poor and vulnerable groups in developing countries are hard hit by high and volatile prices of the agricultural commodities they depend on for their primary daily caloric intake. As experienced during the 2007-08 global food price crisis, price movements in domestic markets can have significant impacts on global markets, and vice versa.
The United States plays a key role in international commodity markets as it is the top producer and exporter of maize and soybeans. As of 2011, US production of maize and soybeans accounted for more than 30 percent of total world production, and US exports of those crops represented over 40 percent of total world exports.
In countries like Mexico and Egypt, the second and fourth largest importers of US maize, imports account for 26 and 42 percent of total maize available, respectively. In Mexico and China, the two largest importers of soybeans among developing countries, imports make up 88 and 45 percent of their total soybean supply, respectively.
Rising maize and soybean prices can cause an increase in other commodity prices as the livestock industry switches from maize to wheat for animal feed and consumers are forced to shift their consumption to other commodities like wheat. In the last two months, wheat prices have risen by 26 percent.
Egypt and Brazil, the two largest importers of wheat, may likely experience adverse effects of potential price hikes, as they import more than half of their total wheat supply.
As a result, prices for livestock products—such as meat and dairy—may also see an increase as the cost of feed increases, which may result in a deterioration of the diet quality of the poor if they shift their consumption from meat and dairy products to cereal crops.
Several urgent actions must be taken to address the current situation in order to prevent a potential global food price crisis:
The International Food Policy Research Institute (IFPRI) seeks sustainable solutions for ending hunger and poverty. IFPRI was established in 1975 to identify and analyze alternative national and international strategies and policies for meeting the food needs of the developing world, with particular emphasis on low-income countries and on the poorer groups in those countries. It is a member of the CGIAR Consortium. http://www.ifpri.org.