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GLOBAL: Jury still out over food impact of Midwest floods

27 Jun 2008 13:18:28 GMT
Source: IRIN

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NEW YORK, 27 June 2008 (IRIN) - The worst floods in the Midwest in 15 years have helped maize prices surge to unprecedented levels, leading to calls for Washington to release more conservation land for cultivation and to reduce minimum ethanol production requirements.

But in a sign of the nervousness of a food commodities market already traumatised by relentlessly soaring prices, the latest hike came before any clear production figures were released.

The US Department of Agriculture (USDA) will not issue its latest crop estimates, taking into account the flooding in Iowa and Illinois, the top maize-producing states, until 30 June, but many analysts say the net effect is expected to be negative, with some predicting serious repercussions.

Iowa Senator Charles Grassley, a Republican, has called on the USDA to allow farmers to plant crops on millions of acres of land held over for conservation.

Meanwhile, industries that depend on maize as a major feed ingredient, such as livestock and dairy businesses, as well as bakeries, have urged the federal government to lower the statutory minimum proportion of maize that must be set aside to produce ethanol bio-fuel. Both moves could ease the upward pressure on food prices, according to some specialists.

Analysts expressed concern about the effects of the floods on the global food crisis, which will be high on the agenda of the G8 industrialised nations summit in Japan on 7-9 July.

"This will throw another spanner in the works," International Food Policy Research Institute (IFPRI) research fellow Marc Cohen told IRIN.

"It comes at a time when several million more people in Ethiopia have been affected by the drought, and problems seem to be getting worse rather than better in Darfur, as well as when prices have already been skyrocketing."

Cohen said a combination of reduced government ethanol mandates and subsidies and perhaps even a moratorium on the further expansion of ethanol-producing capacity would be "helpful in terms of the current crisis". But he stressed that any longer-term solution required progress in deriving biofuels from non-food sources, such as grasses or using the leaves and stock of the maize plant rather than the kernels and ears that people and animals eat.

Although it looks like Australia is going to have a wheat harvest for the first time in several years and things are looking better in some other countries, "it still nets out negative," he said.

Harvest worries

David Kauck, senior policy analyst at CARE, said: "It looks as if it's going to be a very bad crop year," which "could well ripple" round the world, adding to the cyclone in Myanmar that affected rice and the drought in Australia.

Oxfam policy director Gawain Kripke noted "very worrisome signals" stemming from estimates put out before the flooding that the US would produce about 10 percent less maize next harvest than the last one, despite rising demand.

"So the next estimate may be even worse," he told IRIN. "Since the US produces 40 percent of the world's maize, that has an impact on global prices and global production too."

He did not think freeing up more land for crop production would have any real effect in the short term. Some 34 million acres in the US are covered by the Conservation Reserve Programme under which farmers set aside land for as long as a decade and cannot use it without paying penalties.

On ethanol, Kripke noted that a quarter of this year's US maize crop, which mainly grows in the Midwest, had been set aside for bio-fuel and that would rise to a third next year, putting additional pressure on prices for cattle feedstock.

But it is not clear that easing ethanol mandates would have much impact on prices as high petrol prices make ethanol cost-competitive and blenders are actually blending more ethanol than the legal minimum.

"That could change because as the corn [maize] prices go up, ethanol prices are going to have to go up as well, so it may not be as good a deal compared to gasoline in the near future, but that hasn't happened yet," said Kripke.

According to the US National Corn Growers Association (NCGA), it is still too early to determine whether or not the flooding has dealt a serious blow to crop prospects, one that requires action being taken on land-use restrictions and ethanol production.

NCGA president Ron Litterer, an Iowa farmer, told IRIN: "I would suggest that we are probably not going to have a bumper crop, but we still could have a decent crop. We're sort of estimating right now that it's about 7 percent of the corn [maize] acres that were affected state-wide, so that means that there are about 93 percent that weren't affected severely," he said, noting that the weather was now improving and some flooded areas would get replanted, some with maize and others with soya beans.

Ma/am/mw

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