Denial Really Is A River In Egypt, Part 3

David Goldman argues at the Asia Times that it was wheat prices that did Mubarak in and he has a very valid point:

In this case, Asian demand has priced food staples out of the Arab budget. As prosperous Asians consume more protein, global demand for grain increases sharply (seven pounds of grain produce one pound of beef). Asians are rich enough, moreover, to pay a much higher price for food whenever prices spike due to temporary supply disruptions, as at the moment.

Egyptians, Jordanians, Tunisians and Yemenis are not. Episodes of privation and even hunger will become more common. The miserable economic performance of all the Arab states, chronicled in the United Nations' Arab Development Reports, has left a large number of Arabs so far behind that they cannot buffer their budget against food price fluctuations.

Earlier this year, after drought prompted Russia to ban wheat exports, Egypt's agriculture minister pledged to raise food production over the next ten years to 75% of consumption, against only 56% in 2009. Local yields are only 18 bushels per acre, compared to 30 to 60 for non-irrigated wheat in the United States, and up 100 bushels for irrigated land.

The trouble isn't long-term food price inflation: wheat has long been one of the world's bargains. The International Monetary Fund's global consumer price index quadrupled in between 1980 and 2010, while the price of wheat, even after the price spike of 2010, only doubled in price. What hurts the poorest countries, though, isn't the long-term price trend, though, but the volatility.

People have drowned in rivers with an average depth of two feet. It turns out that China, not the United States or Israel, presents an existential threat to the Arab world, and through no fault of its own: rising incomes have gentrified the Asian diet, and - more importantly - insulated Asian budgets from food price fluctuations. Economists call this "price elasticity." Americans, for example, will buy the same amount of milk even if the price doubles, although they will stop buying fast food if hamburger prices double. Asians now are wealthy enough to buy all the grain they want.

If wheat output falls, for example, due to drought in Russia and Argentina, prices rise until demand falls. The difference today is that Asian demand for grain will not fall, because Asians are richer than they used to be. Someone has to consume less, and it will be the people at the bottom of the economic ladder, in this case the poorer Arabs. 

So what can President Obama do?  A major, immediate shipment of food aid to Egypt may be just the thing the US needs to look like heroes.

The best thing the United States could do at the moment would be to offer massive emergency food aid to Egypt out of its own stocks, with the understanding that President Mubarak would offer effusive public thanks for American generosity. This is a stopgap, to be sure, but it would pre-empt the likely alternative. Otherwise, the Muslim Brotherhood will preach Islamist socialism to a hungry audience. That also explains why Mubarak just might survive. Even Islamists have to eat. The Iranian Islamists who took power in 1979 had oil wells; Egypt just has hungry mouths. Enlightened despotism based on the army, the one stable institution Egypt possesses, might not be the worst solution. 

But here's the problem, as China's growing middle class goes from rice to beef, it's putting grain prices out of reach for many in Africa and the Middle East.  It's all about food, folks, and the latest spike in food prices worldwide has already toppled a couple of regimes.

More will follow.  How will the US and the EU respond?  More importantly, how will China and India respond?  Certainly much less beef is eaten in India, but the two countries are responsible for a third of the world's people, and their growing food bill is being paid for by countries like Egypt.  Americans may eat a lot, but they can't compare to over 2.5 billion Chinese and Indian mouths to feed, and the entire planet is seeing a shift in food consumption habits now.

Hamburgers in Beijing brought down Mubarak.  A sobering thought.