In the past few days, everyone and anyone has been speculating wildly on the cause of the London riots.
Was it a reaction to the oppression of a long ignored underclass? Did the tinderbox of racial segregation finally have a match dropped on it? Could it be a breakdown of our loosely woven social fabric? Or was it just that young, poorly educated, unemployed people have an irrepressible love of smashing stuff and five-finger discounts?
Everyone has an opinion. Even Hulk Hogan laid the critical analysis legdrop. However, recent research has shown that the answer is a lot simpler than the pundits are making out, and in fact, can be summed up in two words:
It’s said that any civilisation is three square meals aware from anarchy, and that’s a philosophy that Marco Lagi and his team from New England Complex Systems Institute subscribe to. Research they published last December shows an extremely worrying correlation between food prices and social unrest.
The chart above plots information from two sources. First, the UN’s food price index of the Food and Agriculture Organisation that shows the price of food over time. Secondly, they have plotted riots and events of social unrest from around the world with it.
While Lagi’s team are aware that the riots in the UK and other places weren’t sparked by food prices directly (although the 2008 riots were), they believe that an increase in food prices allows for a culture in which unrest can spread.
"These observations are consistent with a hypothesis that high global food prices are a precipitating condition for social unrest," says Lagi.
It’s not a massive jump of logic that hungry people are angry people.
In 2008, there were mass riots in over twenty countries in reaction to a massive jump in food prices, including Brazil, India and Russia.
In 2011, food prices have risen above the level that caused 2008’s unrest. Analysts suggest that the only reason we haven’t seen a similar spread of unrest is because of bigger stockpiles.
That said, Lagi and his team wrote to President Obama back in December last year with their findings. Four days later and Mohamed Bouazizi decided to follow in the steps of Thích Quảng Đức, kicking off the Arab Spring. The consequences of Bouazizi’s actions are still being felt, with Gaddafi’s downfall happening as this story is being written.
In similar fashion, various economists and researchers have predicted the riots in Britain well before they happened, only to be met with dismissal.
Back in March, senior HSBC economist Karen Ward warned of riots in Britain if the current trend continued, a notion which (among many others) Iceland boss Malcolm Walker ignorantly disregarded as “complete rubbish”.
"Even in the developed world I think we have very, very low wage growth,” Ward told Sky News. “People aren't getting more in their pay packet to compensate them for food and energy, and I think we could see social unrest certainly in parts of the developed world and the UK as well."
With budgets stretched by increased food and energy prices without any real increase to those budgets, it’s not a massive stretch of the imagination to think that people may source alternate methods to get that brand new plasma TV.
The UN has also recently issued further warnings of food riots around the world. Senior grains economist at the FAO Abdolreza Abbassian said, “Our fear is that we still haven't seen the worst of food inflation in vulnerable countries and that could be coming. One way or another, rising food prices bring hardship on their people and you can't rule out the possibility of further food riots.”
The rising prices have been attributed to many causes. The most obvious is supply not meeting demand. According to the International Food Policy Research Institute, food production only increases 1-2% per annum, whereas global population increases 4% every year.
Another school of thought is the demand for a more varied diet in newly prosperous nations. Whereas a kilo of grain would have sufficed before, people who have been able to adapt a wider diet may instead demand a kilo of beef, which costs 7 kilos of grain to produce.
Rising food prices are also related to rising fossil fuel prices. Fossil fuels are used in every part of the food manufacturing process, from fertilizer, to production, to transportation. Even the paint on the tractor is oil based. The IFPRI suggested that oil price hikes have contributed to food problems in the past, and owing to neglect in agricultural investment, will happen again.
However, by far the most damaging has been the rampant speculation on food commodities.
In 2008, financial speculation in commodity futures created a “commodities super-cycle”, with the trillions that had been removed from more traditional investments being pumped into food and other commodities for quick gains.
A similar trend has arisen in the past year, with food prices catapulted up thanks to an unstable economy, deregulation, and jittery investors jumping on anything that looks like it might make some money.
Lagi’s team also suggested that the process of turning corn to ethanol has also brought the food price index up, as it is a practise encouraged by subsidies. He also pointed out that both practises can and should be changed.
Lagi said that although the current rate of food price index is well above the threshold at which he expects riots, the long term trend line hasn’t quite reached it. However, Lagi expects to cross this by August 2013.
The UN, Lagi, and others have been ignored before, and been bang on the money with their predictions. If they turn out to be correct again, predicting exactly what might happen begins to verge on impossible. One thing is for sure, though.
If investors playing the food market for quick cash don’t curtail their greed soon, they will find out just how hungry the rest of the planet can be.
|Marco Lagi's Report (PDF)|
|Karen Ward on Sky News|
|Are We Heading Towards a Social Media Clampdown?|