With poor harvests last year in Russia, Canada, and Ukraine, a recent heat wave in Argentina, and floods in Australia that destroyed much of that nation’s wheat crop, agricultural commodity prices have sharply increased over the past year.
The rising cost of food is likely the spark that ignited protests in Tunisia and Egypt. Wheat prices at the Chicago Board of Trade increased by 73% in 2010. Corn prices rose by 94% over the same period.
According to Egypt’s agriculture ministry, the country imported 40% of its food in 2010, including 60% of its grain. Making matters worse, an insect infestation forced the Egyptian government to destroy 50% of its wheat supply.
In response to this instability, the last Middle Eastern sovereigns standing may start stockpiling wheat. Saudi Arabia, Algeria, and Jordan have already started hoarding this commodity as insurance against political instability. As these countries stockpile grain, they will have to import their supply from elsewhere.
Compounding this crisis is that eight wheat-producing regions in China are experiencing drought conditions. China is the world’s largest wheat producer and is responsible for about 18% of the world’s harvest. China is normally a net exporter of wheat, but this year it might not have the wheat to export. The United Nations is warning that China’s June wheat harvest may be lower than expected owing to drought conditions in China’s wheat belt. One local weather agency has suggested that in Shandong, the drought is the worst for that province in 200 years. If these regions do not get rain soon, China may potentially have to import wheat this year, which would put even more upward pressure on wheat prices.
With Chinese exports down and Middle Eastern countries importing more grain to stockpile, expect prices to skyrocket.
North Korea, which relies heavily on Chinese imports, and which has a population that is already suffering from chronic starvation, is likely to face unrest over elevated food prices. Since the early 1990s, China has accounted for nearly 90% of North Korea’s energy imports. Some estimates suggest that China also provides 45% of North Korea’s food.
A pending food crisis could not have hit North Korea at a worse time. The country is still in the process of managing a delicate transition of power from Kim Jong Il to his son, Kim Jong Un. North Korea’s reckless sinking of the South Korean naval vessel that resulted in the deaths of 46 sailors, and its bombing of Yeonpyeong Island, have forced the South Koreans to dig in their heels and threaten disproportionate retaliation in the event of further North Korean aggression.
Even the smallest spark of trouble could ignite a conflagration on the Korean peninsula.
The crisis could lead to a boiling point that would give the North Koreans two options: Explosion in an attack against South Korea, or implosion in a popular revolt against the regime.
Only this time, the revolution will not be “Twitter-ized.”