Pakistani troops guarding wheat supplies

From the department of what-is-going-on-here?

Authorities in Pakistan have deployed paramilitary troops to guard wheat supplies around the country amid fears of a huge shortfall.

The Government has blamed hoarders and smugglers for the problem.

Pakistan's national disaster management authority has deployed thousands of paramilitary troops at wheat stores to ensure that store owners do not sell more than allowed by the Government.

However, President Pervez Musharraf says there is enough grain to feed everyone and the crisis has been engineered.

There seems to be enough evidence that food is becoming scarcer. The Economist commodity-price index has noted that the price of food has increased by 49% in the last 12 months. Moreover, The Economist had a recent edition entitled The End of Cheap Food which said:

Since the spring, wheat prices have doubled and almost every crop under the sun—maize, milk, oilseeds, you name it—is at or near a peak in nominal terms. The Economist's food-price index is higher today than at any time since it was created in 1845 (see chart). Even in real terms, prices have jumped by 75% since 2005. No doubt farmers will meet higher prices with investment and more production, but dearer food is likely to persist for years.

Why are prices so high? Part of it has to do with the US Dollar which is used to measure the price of food internationally - with a reduction in value of the US Dollar, food prices will go up normally in response. Yet it seems to be more than that - what is going on? The Economist argues that it is a result of government interference in the food market. That sort of argument is commonly wheeled out in regards to the price and availability of oil.

There is one reason which The Economist has not picked up on: maybe prices are so high because there are food shortages. Maybe global warming has gotten to the point where it has begun to disrupt food production on a global scale.

It is, however, a maybe. I'm not going to run with this argument until I see all the facts, namely reputable sources that outline worldwide grain production. If there is a trend of lower grain production over the years, I would begin to support the "global warming is causing it" theory.

There is one thing that makes me concerned - the fact that the Economist food price index has jumped to historical highs. This either means that food production has slowed or it means that there's some sort of speculation occurring. In the latter case, this will mean high food prices but also increasingly large stocks of food going unsold. If a bubble is forming in the grain market then an oversupply of grain will naturally be the result.

The good news from Australia - one of the world's largest grain exporters - is that our drought is coming to an end. The La Nina weather pattern has resulted in increased rainfall in Australia's South East and, so long as it lasts, it means that our grain growers will be able to produce a bumper crop over the next few years.

Still, there's something scary about soldiers in Pakistan guarding grain supplies.

Update:
The Economist has some interesting stats:

Yet what is most remarkable about the present bout of “agflation” is that record prices are being achieved at a time not of scarcity but of abundance. According to the International Grains Council, a trade body based in London, this year's total cereals crop will be 1.66 billion tonnes, the largest on record and 89m tonnes more than last year's harvest, another bumper crop. That the biggest grain harvest the world has ever seen is not enough to forestall scarcity prices tells you that something fundamental is affecting the world's demand for cereals.

Interesting, but not accurate. I've just downloaded the latest report that the Economist uses for its figures. It is available here. Yes the estimation is 1.66 billion tonnes which is probably a record. Yes it is 89 million tonnes more than last years harvest, but last year's harvest was not a "bumper crop". The International Grains Council reports that last year's figures were 1570 tonnes, the year before was 1602 tonnes and the year before that was 1649 tonnes. What this indicates is that grain production has been declining since 2003 - although the IGC is probably right when it says that this year's crop will be a record. In other words, international grain production has dropped for about 3 years in a row before the bumper crop this year. What is missing is the cause for this drop. I wish The Economist was accurate in its reporting here.