Malmgren: The Food Crisis Will Get Worse

I have profiled Phillipa Malmgren before, a top insider who has worked at Treasury and with the Plunge Protection team, she early on warned about rising food prices. She's still warning about food prices and unrest it may bring to even more parts of the world.  Here's what she told the Australian:

We've got worldwide food inflation that's hitting the emerging markets harder than anywhere else. It is a really serious problem and it explains the violence we've seen in North Africa.

Food prices drive politics. Half the income of an emerging market worker is spent on food and energy. This drives people into the streets where they elevate their old grievances. It tests the social fabric. This means that places like North Africa where that fabric is weak descend into coups and violence. In other places like Bangladesh it appears in the form of massive wage demands.

We've been talking about this for the past 2 1/2 years. During the financial crisis lending to farmers stopped, so they didn't plant. We've had a supply-side shock for most things we extract from the planet, agriculture, mining and oil. I think we are going to continue to see very tight food supplies. Capital is not being put to work in farming around the world.

The pressure is severe in China. Everybody talks about China's 10 per cent growth rate. But the inflation rate is now 6 per cent and unofficially it's 10 per cent and that's not a sustainable environment. So you've got a serious problem. India has a similar problem. China's ability to suppress civil unrest is powerful. But I think Vietnam looks very vulnerable and some argue it's the next Tunisia. In Bangladesh we've seen textile workers striking and threatening to destabilise politics

Pakistan, like Egypt, is massively susceptible to food inflation. The point is this price phenomenon is broad based. It is manifested in different ways but it is important to realise this is not just an Arab street phenomenon.