Tags: hans | parisis | Global | Unrest | Fear | Food | egypt

Global Unrest Leads to Stockpiling Fear, Maybe Food

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Friday, 28 Jan 2011 02:29 PM Current | Bio | Archive

When I’m looking at the unrest in Egypt and various other places, I can’t help of thinking back at the Yom-Kippur War of 1973, which was the fourth Arab-Israeli war that was fought from Oct. 6-25, 1973, between Israel and a coalition of Arab states led by Egypt and Syria.

It had a long-term, but not permanent, impact on a wide range of different economic and political issues not just within the Middle East but on the world as a whole.

From the perspective of financial markets, possibly the most significant was the decision by OPEC on Oct. 16, 1973, to raise the price of oil by 70 percent and then, the next day, their declaration of an oil-price embargo in direct response to the U.S. decision to re-supply the Israeli military.

Although the embargo was lifted by all but one of OPEC’s members in March 1974, oil prices permanently refused since then to return to their pre-crisis levels. That fact was a key factor in creating the global environment of low growth and high inflation that persisted for the next decade.

Given all this, I wonder whether one of the less-considered, at least within the currency markets, possible effects of the current unrest spreading throughout North Africa and the Middle East is to bring further upward pressure on food prices at a time when inflationary concerns are building, particularly within the emerging markets.

No doubt it is noticeable that one of the key causes of popular dissatisfaction in nations such as Syria, Algeria and Egypt has been the high cost of fuel and other staples.

In Jordan and Syria, authorities have intervened by either cutting prices or by increasing allowances. Also earlier this week, Algeria bought 800,000 tons of wheat, which is much more than they usually do, and Saudi Arabia announced plans to double the size of its wheat stockpile.

But tellingly, this stockpiling hasn’t been confined to the Middle East.

Now, Bangladesh and Indonesia also have joined the rush, placing extraordinary rice orders. A trader said that Jakarta, which usually buys rice in 200,000 ton allotments, asked for more than 800,000 tons.

Bangladesh said it would double rice purchases this year. By the way, Bangladesh, one of the world’s largest rice importers, raised its import target for the grain to 1.2 million tons, up from an initial estimate of 600,000 tons. Badrul Hasan, director for procurement at the nation’s directorate general of food, told Bloomberg News the reason was “panic buying” among the country’s population.

All this tells me that a wide range of nations are becoming more fearful of food price inflation, and with good reason.

I have no doubt this trend towards stockpiling will grow further.

Add to that the possibility of some important worldwide climate-induced harvest failures, and we have the perfect setup for extremely dangerous food-price inflation escalations in many places.

Now, if I’m right, then there are many possible implications for the currency markets.

This should obviously favor the currencies of nations that produce food staples.

This should provide further support to currencies supported by relatively hawkish central banks.

This might act as a catalyst for nations to be more willing to allow their currencies to appreciate at a fast pace if it helps reduce the domestic cost of food.

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HansParisis
When I m looking at the unrest in Egypt and various other places, I can t help of thinking back at the Yom-Kippur War of 1973, which was the fourth Arab-Israeli war that was fought from Oct. 6-25, 1973, between Israel and a coalition of Arab states led by Egypt and...
hans,parisis,Global,Unrest,Fear,Food,egypt,currency
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2011-29-28
Friday, 28 Jan 2011 02:29 PM
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