[pf] Fw. World Grain Harvest - Earth Policy News

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Eco-Economy Update 2001-3
For Immediate Release
Copyright Earth Policy Institute 2001

WORLD GRAIN HARVEST FALLING SHORT BY 54 MILLION TONS
Water Shortages Contributing to Shortfall

Lester R. Brown

While Americans celebrate another bountiful grain harvest, there are signs
that the world harvest is falling short as water shortages translate into
food shortages. In its November world crop survey, the U.S. Department of
Agriculture reports that this year's world grain harvest of 1,841 million
tons will fall 54 million tons short of projected consumption of 1,895
million tons. This comes on the heels of a poor crop last year, when world
output fell short of use by 34 million tons.

These two consecutive disappointing harvests have reduced next year's
projected world carryover stocks of grain, the amount in the bin when the
new harvest begins, to 22 percent of annual consumption, the lowest level
in 20 years. With stocks at such a low level, all eyes will be on the
harvest in 2002. Another short harvest could lead to rising grain prices
and higher prices for bread, meat, milk, eggs, and other products derived
directly or indirectly from grain.

The poor harvests of the last two years were largely due to weak grain
prices, drought, and spreading water shortages. The lowest grain prices in
two decades have discouraged farmers from investing in production-boosting
measures.

Prices that are too low to stimulate adequate production can be quickly
remedied as the market responds to tighter supplies. But dealing with the
water shortages that result from drought, aquifer depletion, and the
diversion of scarce water to cities is much more difficult.

Water tables are now falling in key food-producing regions -- the North
China Plain, the Punjab in India, and the southern Great Plains of the
United States. The North China Plain accounts for a third of China's grain
harvest. The Punjab, a highly productive piece of agricultural real estate,
is India's breadbasket. And the southern Great Plains help make the United
States the world's leading wheat exporter.

In an increasingly integrated world economy, water shortages are crossing
national boundaries via the international grain trade. Since it takes 1,000
tons of water to produce 1 ton of grain, the most efficient way for
water-deficit countries to import water is to import grain.

The fastest-growing grain import market in the world today is North Africa
and the Middle East, the region with the most serious water shortages.
Virtually every country in this region -- stretching from Morocco eastward
across the northern tier of Africa and the Middle East through Iran -- is
facing water shortages. With supplies limited, countries satisfy the
growing demand for water in cities and industry by taking it from
agriculture. Then they import grain to offset the loss of production capacity.

It is often said that future wars in this region are more likely to be
fought over water than oil. This may be, but it is hard to win a water war.
The competition for water is more likely to take place in world grain markets.

In recent years, grain imports into Iran, a water-short, grain-deficit
country, have eclipsed those of Japan, long the world's leading wheat
importer. Last year, Egypt also moved ahead of Japan. Both Iran and Egypt
now import over 40 percent of the grain they consume. The populations of
both countries are continuing to grow, but their water supplies are not.

Grain exporters are, in effect, water exporters. Canada, where water
exports are a politically sensitive issue, is one of the world's leading
exporters of water in the form of grain. The 18 million tons of grain,
mostly wheat, that it ships abroad each year embody 18 billion tons of
water. Similarly, U.S. annual grain exports of 90 million tons of grain
represent 90 billion tons of water, an amount that exceeds the
67-billion-ton annual flow of the Missouri River.

The adequacy of food and water supplies are closely linked. Some 70 percent
of all water that is pumped from underground or diverted from rivers is
used to produce food, while 20 percent is used by industry and 10 percent
goes to residential uses. With 40 percent of the world's grain harvest
produced on irrigated land, anything that reduces the irrigation water
supply reduces the food supply.

The wildcard in the world grain market is China. It accounted for 45
million tons of this year's grain harvest shortfall of 54 million tons.
Last year, China's harvest fell short of consumption by 33 million tons. In
two years, it has reduced grain stocks by nearly 80 million tons.

Among the forces shrinking China's grain harvest are severe drought in
northern China during the last two years, spreading irrigation water
shortages as aquifers are depleted and as water is diverted to cities, and
a lowering of support prices. The drought will eventually end, but water
shortages will not. In a country dependent on irrigated land for 80 percent
of its grain, water shortages are fast becoming a security issue. (See
Eco-Economy Update "Worsening Water Shortages Threaten China's Food
Security,": 
http://www.earth-policy.org/Updates/Update1.htm .

In 1994, in an ambitious and successful effort to be self-sufficient, China
raised grain support prices by 40 percent. Unfortunately the drain on the
treasury was too great, so the support prices were lowered, dropping close
to world market levels. As grain prices have fallen over the last three
years, the area planted to grain has shrunk by 10 percent.

China has absorbed the harvest shortfall of the last two years by drawing
down stocks, but there are signs that supplies are now tightening. If this
huge nation has another large harvest shortfall, it will likely have to
import substantial quantities of grain to maintain food price stability.
China, with a population equal to that of India and the United States
combined, has a strong economy and a trade surplus with the United States
of over $80 billion. It would take only $35 billion of that trade surplus
to buy the entire U.S. grain harvest. China can compete not only with the
100 or so countries that import U.S. grain but with U.S. consumers if it
needs to.

If the 2002 world grain harvest falls short of consumption when stocks are
at a near-record low, prices will rise. Higher prices will curb demand,
particularly the feeding of grain to livestock, and will encourage
production. Supply and demand will again be in balance, but at a higher price.

If world grain demand continues to grow during this coming year at the
16-million-ton-per-year pace of the last decade, then the harvest will have
to jump by 70 million tons to avoid a further drawdown in stocks. Whether
this can occur, in the face of spreading water shortages, remains to be seen.

As water deficits expand in water-scarce countries, so too will grain
deficits. The new reality is that if the world is facing water shortages,
it is also facing food shortages.

A review of the demographic map reveals another troubling reality. Most of
the 80 million people being added to world population each year are being
added in countries that are already experiencing water shortages. Restoring
a balance between water supply and needs worldwide may now depend on
stabilizing population in water-deficit countries.

#     #     #

Additional data and information sources at:
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