Critical Questions: Implications of the U.S. Drought for the Global Food System

Aug 10, 2012

North Georgia drought

 By: Johanna Nesseth Tuttle and Anna Applefield

1. How bad is the drought in the U.S. and what are its negative impacts?

The second half of the summer has been uncharacteristically in the Midwestern region of the U.S., which is causing the worst drought in 50 years for American agriculture. Farmers throughout the Midwest as well as consumers will be impacted by the drought. Specifically, corn and soyabeans, are seeing the biggest drop in yields. Since the U.S. is the world’s top exporter of both of these crops, significant disruptions in domestic production can impact global food prices. In fact, 40% of the wheat and soyabean traded on the global market last year were grown in the U.S. Importantly, the drought came unexpectedly as a result of consistently high temperatures beginning in June, surprising even agricultural experts, who had predicted record high yields up until the heat wave broke out. Since then, the USDA has repeatedly revised its yield predictions downwards to reflect the increasing severity of the drought.
 

2. How might the drought impact food domestically?

The price of this year’s corn crop has risen 45% since mid-June, and the heat does is not abating. The USDA has several times now revised their yield predictions, each time responding to the increasing severity of the drought.  The U.S. has already reduced our grain and soyabean exports, and given the amount used for animal feed, the prices of chicken, beef, and pork may be affected in the coming months. There are already beginning to see signs of price increases due to diminished supply in the U.S., and the increases could have long-term impact on meat prices, lasting a year or more. The price of soyabeans, for example, has already increased more than 25% over the last two months to $18/bushel, and wheat prices have increased 50% since mid-June. While we may see an increase in the price of meat, it is important to note that food retail prices are not closely correlated with food commodity prices, so the price of processed goods, may not necessarily increase.
 

3. What are the risks associated with a change in global food prices?

When there is market panic about the availability of food, countries sometimes impose regulatory restrictions like export bans and restrictions that can affect global food trade. Unfortunately, if one major producer does this, it can have a significant impact on the entire market, as other countries begin following suit. Countries that have been relying heavily on a steady supply of corn and wheat no longer have access to that supply. That scarcity causes prices to go up even further, which exacerbates hunger and malnutrition in developing countries where many people already spend a disproportionate amount of their income on food. This can lead to rioting and political instability. 

4. How might the drought impact food prices globally?

Global food prices are at an all-time high. Currently, soyabean prices are at their highest levels since the 2007-8 food price spike, which caused a dramatic uptick in hunger and malnutrition globally, as well as food riots and political upheaval in some areas. The current drought is also compounded by other problems with global production. Excessive rains in Europe and a light monsoon season in India are also contributing the instability of food prices. Countries that are  big importers of grain commodities are most likely to be affected by these extreme weather conditions; including South Korea, Japan, Peru, Guatemala, El Salvador, Colombia, and East Africa. Importantly, during the last food crisis, increases in rice prices had a major impact on global access to food. During the current drought, rice price and availability has stayed stable, which can act as a powerful counterweight to the U.S. drought where food security and global trade flows are concerned. Overall, it remains to be seen how severe the drought will be and how significantly it will impact global food supply. With global food production diminished in 2012, it will be important for emergency food suppliers like the World Food Programme to be vigilant and attentive to shortages, especially in countries that already struggle with unstable food supplies.