The diversion of land to bio fuel has hurt the fragile food security of nations. UN has estimated the stock of food grain in world at its 26 years low at 309 million metric ton. In terms of days of consumption the stock is down to 54 days as compared to 115 days held in 1999. It is estimated that 36 countries are facing food shortages and some of them are likely to face riot type situations. USDA estimates a shortage of 22 million ton in production in FY 07. In fact the gap in consumption and production has been continuing since 2000 (except in 2004 when there was a surplus). Rice is consumed by 50% of the world population. The major rice exporting countries are Thailand, Cambodia, Vietnam, Philippines, India and China. The last two are grappling with inflation due to faster economic growth and are unlikely to reenter the rice export market.

Where does the bio fuel and sub-prime fit in this food security or insecurity?

Large portion of US corn is being allocated to bio fuel as the nation prepares to fight the crude price increase. Large tracts of land are diverted to bio fuel crops in Brazil, Argentina, Malawi, Malaysia, Mozambique, Senegal, South Africa, Thailand and Zambia. Since most of these countries are likely to use food crops such as maize, sugarcane, soybeans, rape seed and palm oil the food prices are bound to increase as the bio fuel demand creeps up. US have planned to meet 17% of its petrol requirement through bio fuel by 2017.

It is possible to produce bio fuel with non-food crops such as wood chips, varieties of grass etc.  As the land mass is increasingly being used to raise bio fuel raw materials and fresh water used for their cultivation the food security that has been over the years will diminish. Agriculturists and the Nations will use their land mass for bio fuel hoping that the profits out of such venture will pay for the increased food prices not withstanding the rising food shortages such a strategy will lead to.

Apart from bio fuel that has reduced the available export surplus of food produced in the world, the persistent crude oil rise has increased high input costs to the farm sector and helped the farmers to realize better prices. In turn this has affected the availability of food to hungry millions as they are unable to afford the higher prices of food.

We come to most interesting part of the triad, the sub-prime crisis. Ziad had clearly explained the disruptive nature of crude oil price increase in his review http://www.fingad.com/review/assessment_of_oil_and_impact_on_the_global_economy

and had also captured the essence what led to sub-prime crisis in his review http://www.fingad.com/review/a_bubble_on_the_verge_of_bursting_

Essentially the regulators have failed to cap the loans chasing the assets that were showing clear overheating through increased volume based provisions the lenders have to make. The capital was never made dearer to the lenders with result they do not have sufficient capital to absorb the losses of the sub-prime. This in turn will lead lower cross border lending by the institutions affected by the sib-prime crisis. The developing nations having more hungry mouths to feed will be hit the hardest.

We now have a full cycle the avarice of the oil producing nations to exploit the spurt in their demand through cartelization, nations hit by crude prices diverting more land to bio fuel affecting the food security and prices, the new found wealth (chiefly oil producers and emerging economies) chasing secured and stable financial market but finding their way to sub-prime loans forcing lower performance of financial assets and lastly the food crisis being deepened by the prices and reduced supplies.

Well it is not easy to guess as to who started it.

But we need cool heads to look at money management across the borders, especially to keep the financial contagion such as sub-prime from affecting other financial markets, an even handed approach to pricing the natural resources that are dwindling, a balanced energy policy that will not sacrifice the food security that has been achieved over centuries. It is difficult to look at Doha unfinished round to take up this. It is difficult to imagine a world where carbon emission, food security and augmentation of energy sources to balance every countries rightful aspiration of continued economic growth. The uneven distribution of natural wealth and competitive pursuit of economic prosperity by nations has made this problem more acute than one would have wished it.

The investors will have more opportunities as each of the issue raised here will need development and stabilization of new structures & technologies which in turn give them an array of new firms to invest in.