Food prices are at the root of recent turmoil

Political discontent may seem a likely reason for the recent uprisings in the region, but the most compelling explanation lies in Maslow's theories.

Egyptians buy bread from a bakery in Cairo. Amr Abdallah Dalsh / Reuters

When examining the unrest in the region and the repeated talk of contagion, we find that the main culprits for igniting the masses are neither political nor Mena-specific.

After all, Zine el Abidine Ben Ali's regime in Tunisia had been around for 23 years. Hosni Mubarak's rule in Egypt was entering its 30th year. In fact it is the much more basic universal need for sustenance that has driven emotions and the masses to take to the streets.

Although economic hardship has been mentioned in the media as a cause for the uprisings, the focus remained on the countries' political frameworks and corruption. But as the last decades have shown, the majority of people are willing to tolerate living in police states if afforded their basic needs for food and water; necessities that are at the foundation of Maslow's hierarchy of needs. Governments around the world would do well to remember this pertinent Spanish saying: Lo que separa la civilización de la anarquía son solo siete comidas (Civilization and anarchy are only seven meals apart).

In June 2008, the UN Food and Agriculture Organisation (FAO) Food Price Index rose to an all-time high of 213.5 because of a mix of high oil and fuel prices, the growing use of biofuels, bad weather and soaring futures markets. These record prices sparked riots in countries including Haiti, Bangladesh and Egypt, bringing the issue of increasing basic food costs to the forefront of the world's attention.

However, the drop in global commodity prices within months of the June peak translated into a 35 per cent decrease in the FAO price index by February 2009. The short life of these high prices limited hardships and prevented the escalation of the social unrest that did occur. Last month, however, the FAO price index hit a record level for the second month in a row, reaching 230.8 after breaking the 2008 high in December. This represents a 66 per cent increase from the February 2009 low and 8 per cent over the riot-sparking 2008 levels. Prices of corn, wheat, oats, soybeans and soybean oil have gained over 50 per cent in the past 12 months, and the trend is upward. These realities have revived the debate about the main drivers of the price increases.

The elevated prices are coming at a time when the global economy is undergoing a precarious recovery, with unemployment figures still high in many countries. As in the 2008 global food crisis, multiple factors are coming together to push prices upwards. Analysts differ on which factors are most significant.

Speaking at the World Economic Forum's meeting in Davos, Nicolas Sarkozy, the French president, chiefly blamed speculators, accusing them of "pillaging" and calling for further regulation of commodity trading. "It's a chicken and egg situation: speculation feeds on shortages and shortages are made worse by speculation," he said at the conference last month. "A lack of transparency plus a lack of regulation led to an increase in grain prices in a matter of weeks."

Others point to the US Federal Reserve and its policy of quantitative easing. To enable the US to spend its way out of recession, the Fed has been injecting large amounts of cash into the system, which in turn inflates the many dollar-denominated commodities as the US currency weakens.

In effect, the Fed is exporting inflation by printing money that forces its debt burden to be shared globally, a policy that has many finance ministers around the world irate.

Then there is the argument of global population growth and, more specifically, consumption trends in emerging economies. While 2011 is the year we will welcome the seven billionth inhabitant on our little blue planet, it is the rising meat consumption fuelled by the growing wealth in emerging economies, some argue, that has strained food supplies. Diverting food crops towards animal feed that is in turn used to produce the increasingly demanded animal protein is not an efficient calorie-for-calorie trade-off. This creates competition for land, with food crops perhaps losing out, just as they did with the bad energy policies that called for subsidising the production of ethanol, which consumes a lot of corn.

Finally, when all else fails, blame it on the weather. Climate change is a reality accepted by the vast majority, even if its causes are still debated. In the case of wheat, prices have almost doubled because of a sharp decrease in world production. This decrease is principally emanating from Russia and neighbouring countries that have suffered droughts and record heat waves. Other extreme weather events - including dry weather in Brazil and cataclysmic flooding in Australia - have also battered world food production.

Whether you subscribe to the speculators "pillaging" view, the Fed inflationary policies, demographic trends, climate change or any combination of these arguments as an explanation for rising food prices, the most likely inference is a continuation of this trend. As basic goods become too expensive, turmoil will flourish.

Walid Hayeck is the head of asset management at The National Investor