Earth Policy Institute, July 23, 2006
World Grain Stocks Fall to 57 Days of
Consumption
Grain Prices Starting to
Rise
Lester R. Brown
This year’s world grain harvest is
projected to fall short of consumption
by 61 million tons, marking the sixth
time in the last seven years that production
has failed to satisfy demand. As a result
of these shortfalls, world carryover stocks
at the end of this crop year are projected
to drop to 57 days of consumption, the
shortest buffer since the 56-day-low in
1972 that triggered a doubling of grain
prices.
World carryover stocks of grain, the amount
in the bin when the next harvest begins,
are the most basic measure of food security.
Whenever stocks drop below 60 days of
consumption, prices begin to rise. It
thus came as no surprise when the U.S.
Department of Agriculture (USDA) projected
in its June 9 world crop report that this
year’s wheat prices will be up by
14 percent and corn prices up by 22 percent
over last year’s.
This price projection assumes normal weather
during the summer growing season. If the
weather this year is unusually good, then
the price rises may be less than those
projected, but if this year’s harvest
is sharply reduced by heat or drought,
they could far exceed the projected rises.
With carryover stocks of grain at the
lowest level in 34 years, the world may
soon be facing high grain and oil prices
at the same time (See Figure). For the
scores of low-income countries that import
both oil and grain, this prospect is a
sobering one.
The 2006 world grain harvest of 1,984
million tons, estimated by the USDA in
its June crop report, is down 24 million
tons from last year, or roughly one percent.
It is down three percent from the historical
high of 2,044 million tons produced in
2004.
World grain consumption has risen in each
of the last 45 years except for three—1974,
1988, and 1995—when tight supplies
and sharp price hikes lowered consumption
(See Figure). Growth in world grain demand,
traditionally driven by population growth
and rising incomes, is also now being
driven by the fast growing demand for
grain-based fuel ethanol for cars.
Roughly 60 percent of the world grain
harvest is consumed as food, 36 percent
as feed, and 3 percent as fuel. While
the use of grain for food and feed grows
by roughly 1 percent per year, that used
for fuel is growing by over 20 percent
per year.
Although the rate of world population
growth is projected to slow further, the
number of people to be added is expected
to remain above 70 million a year until
2020. Each year the world’s farmers
must try to feed an additional 70 million
people, good weather or bad. This growth
is concentrated in the Indian subcontinent
and sub-Saharan Africa, which is where
most of the world’s hungry people
live.
When incomes begin to rise, low-income
consumers diversify their diets, shifting
from a diet dominated by starchy foods,
such as rice, corn, wheat, and cassava,
to a more diverse diet, one that incorporates
grain-intensive products such as meat,
milk, and eggs. In high-income countries
like the United States and Canada, grain
consumed indirectly in the form of livestock
products far exceeds that consumed directly
as food.
Rising incomes worldwide are enabling
some 3 or 4 billion low-income consumers
to move up the food chain, consuming more
poultry, pork, beef, milk, eggs, and farmed
fish. World meat production, which climbed
from 44 million tons in 1950 to 265 million
tons in 2005, moves higher each year.
During this 55-year span, production per
person more than doubled, going from 17
kilograms to 41 kilograms.
The newest, potentially huge claimant
on world grain supplies, the use of grain
to produce fuel ethanol, is concentrated
in the United States where a projected
55 million tons, or one fifth of the projected
268-million-ton corn harvest for 2006,
will be used for this purpose. This year
the climbing use of corn to produce automotive
fuel will catch up with the U.S. export
of corn, which is also estimated at 55
million tons (See Figure). For perspective,
although 55 million tons is only 16 percent
of the U.S. grain harvest, it exceeds
the total grain harvest of Canada.
Farmers are facing a record growth in the
demand for grain at a time when the backlog
of technology to raise grain yields is
shrinking, when underground water reserves
are being depleted, and when rising temperatures
threaten to shrink future harvests.
Water tables are now falling and wells
are going dry in countries that contain
half the world’s people, including
the big three grain producers—China,
India, and the United States. In China,
water shortages have helped lower the
wheat harvest from its peak of 123 million
tons in 1997 to below 100 million tons
in recent years. Water shortages are also
making it more difficult for farmers in
India to expand their grain harvest. In
parts of the United States, such as the
Texas panhandle and in western Oklahoma
and Kansas, depletion of the Ogallala
aquifer has forced farmers to return to
lower-yield dryland farming.
The world’s farmers are also losing
water to cities. In the United States,
for example, hardly a day goes by without
another sale of irrigation water to small
towns or large cities such as Los Angeles,
San Diego, Las Vegas, and Denver. Some
of these water sales are by individual
farmers selling water rights to a local
town. Others represent sales of water
rights by entire irrigation districts,
as in parts of California.
The widespread overpumping of aquifers
for irrigation means we are feeding ourselves
with water that belongs to the next generation.
While it is widely recognized that the
world is facing a future of water shortages,
not everyone has connected the dots to
see that this likely also means a future
of food shortages.
Perhaps the most dangerous threat to future
food security is the rise in temperature.
Among crop ecologists there is now a consensus
that for each temperature rise of 1 degree
Celsius above the historical average during
the growing season, we can expect a 10
percent decline in grain yields. When
describing weather-reduced harvests, crop
analysts often refer to the crop prospect
when weather returns to normal. They fail
to realize that with the earth’s
climate now in flux, there is no longer
a norm to return to.
More and more in recent years, crop-withering
heat waves have led to major crop losses.
For a recent example, the early estimate
of India’s wheat harvest this year
of 73 million tons dropped to 68 million
tons as high temperatures during the crop’s
critical growth stage in January and February
shrank the harvest.
The troubling constraints on grain production
growth, such as spreading water shortages
and rising temperatures, are making it
difficult for farmers to keep up with
the record growth in demand. As a result
the world grain market may become a seller’s
market, one where higher grain prices,
like high oil prices, are an integral
part of the economic landscape.
Copyright © 2006 Earth Policy Institute
Earth Policy Institute
Email: epi@earth-policy.org
