Is it just me, or are we seeing a lot on agriculture in the media lately? It's almost as though global-trend watchers are getting nervous. I noticed (or perceived, at least) an upward trend in ag coverage about a week back, hence my post two Mondays ago focused on its role in Afghanistan. Last week also witnessed a great Rolling Stone piece on investors purchasing land in Africa and elsewhere in order to bank on projected food shortages, which I'll get to tomorrow.
But for today I'll begin with yesterday's Financial Times. Part of its coverage came in the form of a special section on commodities (which is worth skimming in whole). The headline sounds quite reassuring: “Agriculture: Bumper Harvests Bring Stability.” Its author examines only the macro level, and describes food production abundance resulting this year from high prices. This stability he describes is in prices, not in the social and political conditions we monitor here at CNAS – and to be sure, the two do not always meet. He does, however, quote one expert who looks beyond just world prices, with a less optimistic result:
Emmanuel Jayet, agricultural commodities analyst at Société Générale in Paris, says that the factors that contributed to the 2007-08 crisis – rapidly rising consumption on the back of population growth, leading to insufficient supply – exist still.
“The sharp supply tightness that we had in 2008 – which was not only an investor story, but actual supply tightness – was a warning signal,” he says. “My concern is that consumption is growing steadily, and that production may not keep pace with rising demand.”
That gets to the heart of what to watch in agriculture, in my book: production issues. And the more fidelity by region and country, the more apparent potential security concerns become. The FT’s front section yesterday included a piece on India that indicates potential production issues in its title: “Indian Growth Needs Recovery and Rain.” Getting down to the country level shows a more stark reality. Sure, prices are up globally – and within India, to the tune of 16% food price inflation, compared to its general growth of 8.6% in the first quarter this year. But regardless of where prices stand, weather conditions need to align in support of increased production, and most experts believe that India has long been in need of a second agricultural revolution regardless of good or poor weather. There is hope that the coming monsoon will lead to increased production, especially after last year delivered to India its worst drought in three and a half decades. As the article notes, the stakes are high given that most of India’s people still rely on agricultural incomes and subsistence.
What could happen? Depending on where geographically agricultural problems lie, tapping into ever greater water resources from the river systems is shares with Pakistan and other countries could become increasingly attractive. Last week The Washington Post reported that regardless of India’s real activities, some Pakistani extremists are declaring that it is already diverting increasing levels of water, even calling it “water terrorism.” Reading these articles together, I do not get the sense that many of the important parties involved in deciding between creating stability or instability in this region care very much about world commodity prices.