Food: Now It's the $6 Loaf of Bread

In the afternoons, Ringo Purganan, a 20-year-old who is training to be a cook, pedals his bicycle home through the densely populated barrio of Krus na Ligas in Quezon City, outside Manila. His mother usually leaves some bread and fruit juice for him to snack on before he returns to work. (Article continued below...)

But today, the kitchen is empty save a plastic container half-filled with rice grains. His daily earnings of about $4.70, and the wages from his mother's

job washing dishes at a university canteen, can't buy enough food for his six-person family. With the price of rice having nearly tripled in recent months, the Purganans usually skip breakfast. "It can be hard to accept things as they are, but we survive," he says.

From the crowded warrens of Krus na Ligas to the aisles of the Wal-Mart in Las Cruces, N.M., the price of food has become an unavoidable topic of conversation. In January, the bull run of agricultural commodities was an afterthought at the World Economic Forum in Davos, where the subprime crisis, sovereign-wealth funds and the seemingly inexorable rise of petroleum dominated the agenda. But in a few short months, food has replaced oil as the Next Big Threat to the long-running global expansion. In the past year, wheat and corn futures have risen 61 percent and 58 percent, respectively. Rice futures have more than doubled since last August.

In the recent global boom—five years of synchronous growth that lifted hundreds of millions out of poverty, forged new trading links and brought the hope of a better life to the developing world—the availability of plentiful, cheap food was generally taken for granted. But now much of the recent progress is being threatened by expensive food, whose advent has been a long time coming. As with oil, the rising prices are fueled in part by speculators. And like oil, expensive staples are swiftly upsetting business plans, sparking inflation, causing political instability and inflicting widespread economic pain.

The United Nations' World Food Program says that hunger has reached a crisis level in all the 121 poorest countries it has recently surveyed. High food prices are "creating a silent tsunami threatening to plunge more than 100 million people on every continent into hunger," said WFP executive director Josette Sheeran in London. The tsunami is no longer so silent. Food-related protests have erupted in Cameroon and Egypt. In Haiti, where the desperately hungry have turned to mud pies (concoctions of cooking oil, bits of vegetable and dirt), riots over food toppled the government of President René Préval.

The reasons behind the price spiral are at once complicated and simple. Although grain harvests in 2007 were the largest in the world's history, unfavorable weather has caused crop failures in Ukraine, a big grain producer, and wiped out Australia's once vast rice production. The rising price of energy, which has jacked up the costs of farming (a great deal of fertilizer is made from petroleum), is also a factor. And so, too, is speculation, as momentum investors have piled into the commodity markets. But at root, the rising prices have been fueled mostly by a long-term, steady increase in demand. To put it simply, in recent years people in developing countries, particularly India and China, have been eating more—and eating better—than ever before. In China, the boom has led to vastly greater consumption of meat and dairy products. Grains are the biggest single cost in raising pigs and cows.

Policy plays a role, too. The global trade in agricultural commodities is riven with inefficiencies created by subsidies and tariffs. The high price of oil has spurred governments to encourage the production of biofuels—ethanol from corn in the United States, sugar cane in Brazil. Last year, one fifth of the U.S. corn crop was diverted to ethanol refineries. The policy response to rising food prices has aggravated the situation. China, India, Vietnam and Thailand have effectively banned rice exports. The moves, intended to build up domestic stockpiles, have further pushed world prices up. The result: higher prices (basmati rice from India in the past year has risen from $850 per ton to $2,000) and hoarding. Chains like Costco and Sam's Club are limiting the number of 20-pound bags of imported rice varieties that customers can buy.

Plenty of people can get through the day without gasoline; nobody can get through the day without food. The sharp, sudden rise in the cost of food could wind up wiping out a great deal of the recent progress made in combating poverty. When you live on $2 a day, and already spend a large chunk of your income on food, a 50 percent increase in the price of corn can be catastrophic. "In 2003, we were talking about ending world hunger—and it looked like a sensible target," says Ben Senauer, a University of Minnesota economist who studies food issues. But in February, Sheeran announced that the World Food Program, which feeds some 80 million people, would need an emergency allocation of half a billion dollars just to cover the increased cost of food aid it had already budgeted. Today's estimated shortfall: $750 million, with only about half of that pledged (including $200 million from the United States, the world's largest food-aid donor).

It may seem insensitive to discuss the impact of high food prices in a wealthy economy in which obesity is rampant. But higher grain prices are having a serious economic impact in the United States. As the U.S. economy slips into recession, the Congressional Budget Office projects that a record 28 million Americans will require food stamps this year. And since this year's allocations are based on prices as of last June, federal aid won't go as far. According to the Bureau of Labor Statistics, the prices for staple groceries have risen sharply in the past year: white bread (16.3 percent), milk (13.3 percent), eggs (29.9 percent). Americans don't starve, says Stacy Dean, director of food assistance at the Washington, D.C.-based Center on Budget and Policy Priorities, "but we have a very significant chunk of the population that isn't able to eat a bare-bones, basic healthy diet." Food pantries across the country are feeling the sting of rising food and gas prices. Barb Prather, director of the Northeast Iowa Food Bank, estimates that her group's food bills have increased 30 to 40 percent in the past year—at a time of rising demand.

A recent USA Today/Gallup poll found that 46 percent of Americans said higher grocery bills had created a personal hardship. The advent of expensive food is creating a kind of widespread sticker shock, and not just at Whole Foods. Just as a barrel of Texas crude has breached the until recently unthinkable $100 mark, New York City bagels have pierced the until recently unthinkable $1 barrier. The fact that inflation is so concentrated in nondiscretionary items, like energy and food, is sapping demand for discretionary items—like clothes and electronics.

Global leaders are waking up to the threat. "Finally, everyone is paying attention," Jacques Diouf, the Senegalese director-general of the U.N.'s Food and Agriculture Organization, told NEWSWEEK last week after leaving 10 Downing Street, where he had met with British Prime Minister Gordon Brown. Brown and French President Nicolas Sarkozy have pledged to attend a food-security summit Diouf is hosting in Rome in June.

There's likely to be little relief soon, however. The factors that could aggravate or improve the situation in the short term (which include the weather, and growth in China) are beyond policymakers' control. Crops don't grow overnight, and investments needed to make farming more efficient and productive in the developing world will take years.

The markets that set prices have been known to fall, as well as rise. Wheat prices, which have leveled off recently, could fall if a bumper harvest materializes this year, a development that would help bring rice prices down, too. But until that happens, and until the dynamics of supply and demand change, there's a sense that urgent actions will be required to feed the truly hungry, while the rest of us will have to tighten our belts. As Abdolreza Abbassian, an analyst at the Food and Agriculture Organization, puts it: "The era of cheap food is over."