Bloomberg News

Food Prices, Water Shortages to ‘Hammer’ Poor Countries

July 08, 2011

(Adds HSBC comments in sixth paragraph)

July 8 (Bloomberg) -- Developing economies will be “hammered” as declining water supply adds to problems confronting farmers who are already struggling to meet food demand, pushing prices even higher, said CH2M Hill Cos.

Countries in short supply of water including China will continue to boost food imports, draining resources in some of the largest agricultural producers including the U.S. and Brazil, said Lee McIntire, chairman and chief executive officer. The company provides services from treating waste water and building irrigation systems to cleaning up nuclear sites.

Food costs tracked by the United Nations advanced in June for the 10th time in the past 12 months, staying near a record on higher sugar, dairy and rice prices, while meat reached an all-time high. The World Bank estimates higher food expenses have pushed 44 million more people into poverty.

“Food prices are going to go up,” McIntire said, without giving a timeframe. “The countries that are trying to grow their economy, I think they’re going to be hammered more and more. They’re going to be short of water.”

The closely held company, based in Englewood, Colorado, provides planning, financing, construction, operations and maintenance services. The firm had gross revenue of $6.3 billion last year and helps provide irrigation in the U.S.

“Global food production is not keeping up with demand,” Fred Neumann, co-head of Asian economic research at HSBC Holdings Plc, said in an interview from Hong Kong. “Countries such as China have seen droughts over many years. Now we see other parts of the world facing some water shortages, which is starting to impact the global price of certain goods.”

Food as Water

The U.S. corn-belt is among the areas in the U.S. with the most “virtual-water” exports, as they ship food products that use a lot of water to grow, according to a study published by the Proceedings of the National Academy of Sciences in December.

The corn-belt includes the states of Iowa, Illinois, Indiana, Minnesota and Nebraska, according to the website of the U.S. Department of Agriculture. The five states made up 62 percent of the corn harvest last year and 55 percent of the soybean crop in a nation that supplies almost half of the global trade, according to USDA data.

“There’s a connection between energy, water and food,” said 62 year-old McIntire in an interview in Singapore July 5. “It’s very hard to ship water. The best way to export water is through food.” It takes about 900 liters of water to produce a kilogram of corn, and double that amount for a kilogram of soybeans, according to the Water Footprint Network website.

China, the world’s biggest importer of soybeans, bought 24 million tons of the 37.97 million tons shipped by the U.S. from Sept. 1 through June 23, according to USDA data.

Soybeans for China

“How do they get water to China? Soybeans,” McIntire said. “You could see a lot of investments by the Chinese, buying land to grow soybeans so they can ship water,” he said, referring to investments in countries including Brazil.

The Asian nation, home to about a fifth of the global population, has only 6 percent of the freshwater, according to the United Nations Food & Agriculture Organization website.

Global stockpiles of corn, the most-consumed grain, are forecast to drop to 47 days of use, the fewest since 1974, data from the USDA show. Inventories are declining as demand continues to outstrip production that’s forecast to rise to a record for a fifth consecutive year.

The proportion of the U.S. corn harvest going to ethanol has almost quadrupled since 2002 and will reach 40 percent in the current marketing year, according to USDA data. Ethanol output has increased more than six-fold since 2002, boosted by federal renewable fuel standards and subsidies now being scrutinized by Congress.

“Water shortages are a problem that we’re going to face for years to come,” Tetsu Emori, a commodity fund manager at Astmax Co., said from Tokyo today.

--Editors: James Poole, Ovais Subhani

To contact the reporters on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

To contact the editor responsible for this story: James Poole in Singapore at jpoole4@bloomberg.net


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