As food prices continue to rise we could see a lot more riots, says Yaneer Bar-Yam
You have found a link between speculators and social unrest. How did you discover this?
We started by analysing the recent financial crisis. The crash in US house prices in 2007 was followed by a stock market crash, then a puzzling peak in the price of commodities such as wheat and metals. Why? Money from the mortgage markets had been moved to the commodity markets. When you pour a lot of money into a small market you are going to have peaks. This has nothing to do with supply and demand; it is simply due to speculators. With high food prices, we were not surprised that riots occurred in many parts of the developing world at the same time.
But it's not just speculators causing food prices to rise, is it?
There is another factor: the conversion of corn to ethanol for biofuel in the US. Forty per cent of US corn is now being converted to ethanol. That's over 15 per cent of global production from almost nothing 10 years ago. This has been a very large shock to the agricultural system.
When you plot food prices over the last 10 years, you see sharp peaks superimposed on a rising trend. The peaks are due to speculation and the rising trend due to corn-to-ethanol conversion.
That allowed you to predict another peak in food prices and the possibility of unrest...
In 2010 we predicted high food prices, social unrest and political instability, and reported this to the US government in December. Five days later, Mohamed Bouazizi set himself alight in Tunisia, triggering the region's current social unrest.
How do food prices cause unrest to spread?
There are various phenomena at work but rising food prices act like a force on the system, increasing the tendency to disorder. In many ways you can liken it to a phase transition from a liquid to a gas - a dramatic change but one that occurs with only a small increase in temperature. As the force of rising food prices increases, we are in danger of a widespread transition to disorder. All it needs is a spark, like a shooting or immolation.
What is going to happen next?
Currently, food prices are peaking just above the threshold we have found at which riots break out but we expect the prices to decline again, probably within months. After that, the underlying rising trend becomes a concern, as we think it is likely to cross the threshold within two years.
What can we do to prevent this escalation?
How bad it gets depends on how wise we are in our response. Investors can help by avoiding investing in commodity markets for profit. The conversion of corn to ethanol is more complex; we don't have to reduce the conversion rate to zero but the amount has to be reduced.
Are you optimistic about the future?
I am hopeful that people will recognise the dangers and respond. What I am not so comfortable with is all the suffering that will happen in the interim. It's quite possible there will be significant suffering, and in London last week we had a peek at what could happen.
Profile
Yaneer Bar-Yam is founder and president of the New England Complex Systems Institute, an independent research body based in Cambridge, Massachusetts
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