Ausgabe 4/2008

Our Hungry Planet The Choice between Food and Fuel

Food prices are skyrocketing. Arable land is becoming scarce. And forests continue to disappear across the globe. The world must decide between affordable food and biofuels.

All it takes for Hans Dietrich Driftmann, a businessman from Germany's northern Holstein region, to explain the way the world works is a package of muesli -- or at least to explain the way his world, the world of agricultural markets, works.

Driftmann picks up a packet of "Köllns kernige Multikorn-Flocken" ("Kölln's Crunchy Multigrain Flakes") and reads out the list of ingredients: oats, wheat, barley and rye. Then he slips a set of price tables out of a plastic sleeve and does a couple of calculations to illustrate how the prices of the muesli's ingredients have changed: rye has gone up by 55 percent, barley by 70 percent and wheat 90 percent. The price of oats has also skyrocketed -- by 80 percent -- since the last harvest a year ago. This final figure is what really hits home for Driftmann.

For the last two decades he has been the CEO of Kölln-Werke, Germany's top producer of oats and a major player in the muesli market. It's an old family-owned company, founded in 1795 and headquartered in the town of Elmshorn, a place with a skyline dominated by enormous grain silos painted sky-blue. The silos are beacons for truck drivers approaching Elmshorn to unload their grain -- if they come at all these days.

Today Driftmann is grateful for every truck that shows up at his silos. This year's oats harvest, he says, was "miserable." His buyers search the whole world for grain, even in places like Finland and Australia. Price is almost secondary. "The problem is availability," says Driftmann.

Highest Inflation in 14 Years

He ought to be able to achieve significantly higher prices in the negotiations with the giant trading companies. He is convinced that a price hike of more than 20 percent is justified, but he also knows that consumers won't accept such a large increase. Not yet, at least. "We will see quite a few price increases in the coming years," says Driftmann.

This is a new experience for agricultural companies -- and presents a troubling outlook for millions of consumers. For decades, they have become accustomed to stable or even declining food prices. But in September, when consumer discount giant Aldi attracted nationwide attention with its memorable advertising campaign ("Aldi is here to inform you about upcoming price increases"), Germans knew that change was coming. Aldi then raised the prices of about 50 items in its stores, and other chains promptly followed suit.

Meanwhile, almost all supermarkets appear to have raised prices across the board: for bread and butter, milk and cheese, pork and poultry, noodles and chocolate, apple juice and beer. The growing wave of price hikes has pushed inflation to its highest level in 14 years.

Some of those who were born after World War II and never experienced leaner times may only now be learning that food does have a value, even an existential one. Suddenly they realize that food is in fact an indispensable resource, critical for life, and that they can no longer expect it to be available at all times and in all places -- especially not at guaranteed low prices.

Too Much Demand, Not Enough Land

When German Agriculture Minister Horst Seehofer, a member of the conservative Christian Social Union (CSU), opened this year's Green Week agricultural fair in Berlin last week, it was under a completely new set of assumptions. For decades, the industrialized world enjoyed the questionable luxury of producing far more milk, butter and wheat than its citizens could ever consume. The surplus was exported, provided buyers could be found, or was placed into indefinite storage or destroyed.

This folly has now come to an end. Europe's mountains of butter have been depleted, its grain silos emptied and its lakes of milk drained. "The era of overproduction is behind us," says Stephane Delodder, an agricultural specialist with Rabobank in the Dutch city of Utrecht.

Food prices are skyrocketing...

Food prices are skyrocketing...

Worldwide flows of goods are shifting and becoming reorganized. For the first time, we are seeing the emergence of a truly global agricultural market driven by the underlying force of all economic activity: the scarcity of goods. Wheat supplies, for example, have reached a 30-year low. In only one year, inventories in the European Union have plummeted from 14 million to one million tons.

Given this situation, the meteorological forecast of a drought in Australia, an important

... as is the price for oil.

... as is the price for oil.

wheat exporter, can trigger a minor earthquake on the world's futures exchanges, where commodities prices are constantly hitting new all-time highs. Nothing fuels the fantasies of commodity traders quite as effectively as a bushel of wheat or a hectoliter of rapeseed oil.

Of course, the current uproar over rising food prices revolves around a lot more than consumers paying a few extra euros for milk, cheese and bread. The real issue is how mankind will be able to feed itself in the future -- and at what price.

How can agriculture feed a world that grows by 80 million people each year? A world that is increasingly exposed to climatic extremes? And, most of all, a world that doesn't just need food for people and feed for livestock, but is increasingly consuming fuel derived from plants?

'Desperately Need a Good Harvest'

The problem is that there is too much demand and not enough land. In a world hungry for agricultural products, the dilemma is that each hectare of arable land can only be used for one purpose at any given time. Potatoes can't be grown where corn is cultivated. Where rye is grown, there is no room left for oats. And when rapeseed is converted into biodiesel, there is no seed left to produce rapeseed oil. This fundamental conflict drives up the prices for agricultural crops. There are growing fears that the world could soon face a food crisis, and that the current bottleneck could expand into widespread starvation.

"We desperately need a good harvest to ease the current situation," says Klaus Schumacher, chief economist at Toepfer International, a large agricultural trading company headquartered in Hamburg. "If that doesn't happen, we'll soon face a genuine supply problem."

Kölln CEO Driftmann's assessment of the outlook for agricultural production is even more skeptical, especially in developing countries where a large share of food products has to be imported and where many people live a daily struggle to survive. "I am afraid that we are slipping into a global food crisis," says Driftmann. "And I'm extremely concerned about it."

At the Global Economic Forum in Davos, Switzerland, which began on Wednesday, the world's elites have identified the scarcity of agricultural commodities as a critical global risk. "The world's food production system," say the forum's organizers, "is about to face a true test." The United Nations has already warned that food shortages could lead to unrest in some countries. In Mexico, for example, tens of thousands of people took to the streets a year ago to protest the explosion in the price of corn meal, a staple of the Mexican diet. This "tortilla crisis" signaled the beginning of the distribution battles the planet is about to face -- struggles over the most productive farmland, the most favorable supply contracts and the best seed.


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