I just want to pick up on the food-price dimension of what’s happening in the Middle East (and other parts of the world) today.
Since the beginning of the current wave of uprisings in the Arab world, I have been of the opinion that this crisis is about two things: livelihoods, and basic human dignity. In both these areas, the recent and ongoing steep rise in world food prices is key; and it is set to continue, or become even steeper over the months ahead.
Simon Nixon had an interesting article in the WSJ on this.
- It is hardly surprising the Egyptian people are angry: the country is one of the world’s most vulnerable to rising food prices. Food constitutes more than 40% of Egypt’s total final consumption—one of the highest levels among all emerging markets, according to data compiled by Absolute Strategy Research. The same is true of Tunisia, Algeria and Morocco. Worryingly, other countries where food is more than 40% of consumption include Pakistan and Ukraine, both nuclear states. The sharp rise in food prices in these countries has inevitably a much greater impact on living standards than the U.S., U.K. or Japan, where food is just 7.2%, 8.7% and 14.3% respectively.
High food and commodity prices are partly a consequence of pressures of rising demand but also reflect the vast amounts of liquidity sloshing around the global financial system…
The vast amounts of liquidity pumped into markets in response to the global economic crisis, most notably the U.S. Federal Reserve, has weakened the dollar while at the same time driving up the price of dollar-denominated assets, including agricultural commodities such as corn and wheat which have doubled in seven months.
Does that mean we should blame the Middle East crisis on Ben Bernanke? Many people already implicitly do exactly that, accusing the Fed chairman of embarking on the last round of quantitative easing in a deliberate attempt to weaken the dollar, thereby fuelling inflation around the world. But that is far too simplistic..
These problems are likely to become even greater as the global recovery picks up pace. The latest data on both sides of the Atlantic suggest inflationary pressures are picking up everywhere, but central banks won’t start withdrawing liquidity while there is still so much spare capacity. At the same time, faster growth in the emerging markets means these countries will continue to accumulate reserves far beyond what their domestic markets can absorb. Add in the risk that the current political instability in the Middle East leads to funds flowing back into developed market assets, and there is a risk of a further round of destabilizing asset bubbles, laying the ground for the next crisis.
His conclusion is interesting:
- From an economic perspective, the best outcome from in the Middle East would be the emergence of open, democratic governments committed to the creation of free and open markets that can provide investment opportunities to absorb some of this global capital. But that is not going to happen overnight.
By the way, the hat-tip for this article goes to Rami Zurayk, author of the fabulous “Land and People” blog.
The next book from my company, Just World Books, will be Rami’s “Food, Farming, and Freedom: Land and People in the Fertile Crescent.” It will be coming out on around March7.
The events of the past two months in the Middle East should surely have persuaded everyone that food-policy issues and freedom issues go hand-in-hand in this region!
Rami Zurayk is an experienced professor of agronomy at the American University of Beirut. He is a Lebanese citizen, with his family coming from the south Lebanese village of Sinay. One chapter of the book consists of excerpts from the diary he was keeping during Israel’s fierce military assault against Lebanon in mid-2006, when he was mainly in Beirut but also in Sinay. We’re coming up to the fifth anniversary of that war. So in many, many respects the publication of Rami’s book– which will have a Foreword by Rashid Khalidi— will be very timely indeed.