The U.S. Drought
August 13, 2012
Q1: How bad is the drought in the United States and what are its negative impacts?
A1: The second half of the summer has been uncharacteristically hot in the Midwestern region of the United States, which is causing the worst drought in 50 years for U.S. agriculture. Farmers throughout the Midwest, as well as consumers, will be impacted by the drought. Specifically, corn and soya beans are seeing the biggest drop in yields. Since the United States is the world’s top exporter of both of these crops, significant disruptions in domestic production can impact global food prices. In fact, 40 percent of the wheat and soya beans traded on the global market last year were grown in the United States. 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 U.S. Department of Agriculture (USDA) has repeatedly revised its yield predictions downward to reflect the increasing severity of the drought.
Q2: How might the drought impact food domestically?
A2: The price of this year’s corn crop has risen 45 percent since mid-June, and the heat is not abating. USDA has revised its yield predictions several times now, each time responding to the increasing severity of the drought. The United States has already reduced its grain and soya bean 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 signs of price increases due to diminished supply in the United States, and the increases could have a long-term impact on meat prices, lasting a year or more. The price of soya beans, for example, has already increased more than 25 percent over the last two months to $18/bushel, and wheat prices have increased 50 percent since mid-June. While we may see an increase in the price of meat, it is important to note that retail food prices are not closely correlated with commodity food prices, so the price of processed goods may not necessarily increase.
Q3: What are the risks associated with a change in global food prices?
A3: When there is market panic about the availability of food, countries sometimes impose regulatory restrictions such as export bans, which 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. In order to prevent that from happening and keep prices stable, the leaders of the G20 announced that they will meet to discuss their grain import and export flows. This meeting underscores the seriousness of the drought and its ability to impact global food security.
Q4: How might the drought impact food prices globally?
A4: Global food prices are at an all-time high. Currently, soya bean prices are at their highest levels since the 2007–2008 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 to 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.
Johanna Nesseth Tuttle is director of the Global Food Security Project at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Anna Applefield is a research associate with the CSIS Global Food Security Project.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2012 by the Center for Strategic and International Studies. All rights reserved.