UNREST IS THE PRICE OF SOARING FOOD COSTS / THE FINANCIAL TIMES ( VERY HIGHLY RECOMMENDED READING )

Commodities daily


Note from the editor

Unrest is the price of soaring food costs

Wednesday March 23 2011

The political unrest in Libya and surrounding regions, which has hit global crude oil markets, is overshadowing the other big story for commodities markets: high food prices.
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But agricultural commodities prices remain high, with corn nearing the all-time highs set during the food crisis of 2007-08. Analysts and traders fear they could continue to move higher for the foreseeable future, pushing up global inflation.
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The International Monetary Fund has just published an interesting working paper shedding new light into the political problem of high agricultural commodities prices. The IMF research study – ‘Food prices and Political Instability’ by Rabah Arezki and Markus Brückner – analyses the impact of high prices in the world’s poorer countries on political stability.
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It concludes, after reviewing data from 120 countries over the 1970-2007 period, that high agricultural prices are feeding into political unrest. The working paper’s results confirm years of anecdotal evidence, including the 30-or-more countries which suffered from riots during the 2007-08 food crisis.
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The paper's relevance is that it builds for the first time a systematic database of countries and their democracy indeces and internal stability, with a focus on “more minor forms of intra-state instability, such as anti-government demonstrations and riots”, and income inequality, and then it links the data with food prices.
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“In low income countries increases in the international food prices lead to a significant deterioration of democratic institutions and a significant increase in the incidence of anti-government demostrations, riots, and civil conflict,” the authors say. “All in all, our empirical results are broadly consistent with the often-made claim by policymakers and the press that food prices increases put a stake in the socio-economic and political stability of the world's poorest countries.”
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The results will be important for the G20 group of leading economies, which is holding the first ever ministerial meeting on agriculture in Paris on June 22-23 to debate rising agricultural commodity prices and the threat of global food security.
Commodities markets are interlinked more than any time in the past. The cost of food is not the only reason behind the wave of protests in the Middle East and north Africa, but in the end, high food prices are feeding into political unrest, which in turn is affecting global energy markets.