Given the very strong relationship between food prices and food riots, the UN Food Price Index is an excellent early warning sign for forthcoming food riots. It measures the monthly change in international prices of a diversified basket of various food commodities. The following graphic illustrates the trend in index levels by year. Note the line for 2010. Now recall that the Arab Spring effectively began on December 18, 2010. Coincidence? I don’t think so.
It appears that a level of around 210 on the food price index for any sustained period of time generates riots. Although the index averaged a problematic 209.9 in the year 2013, the index currently reads 192.3 (Click HERE for latest level). While I believe that lower food prices will in fact help food vulnerable countries like Indonesia remain (relatively) stable, there is a disturbing undercurrent we must consider.
Pardon the pun, but let’s peel the proverbial onion. The food price index is actually composed of five indices representing the prices of dairy, cereal, meat, vegetable oils, and sugar. Each of these is down on a year over year basis, with the exception of one: meat prices. Let’s continue peeling. The inputs into the meat price index are poultry, bovine, pig, and ovine meat product prices, implying a bigger phenomenon than dwindling US cattle stocks.
The real story is one of protein preferences, and falling food prices are masking meat demand. The world is at the early stages of a forthcoming boom in animal protein consumption (See “King Morocco” and “Protein Production Powerhouse”) with wide-ranging implications. Livestock consume grains, so more demand for meat is effectively more demand for grains. Grains consume fertilizers, so more demand for grain is effectively more demand for fertilizer.
Falling food prices should buy us some time and a period of reduced riot risk; but let’s not bank on the calm lasting indefinitely; demand for protein is rising rapidly and will soon bring food prices and riot risks along with it.