Authorities around the world are raising the alarm about the impact of the heatwave and drought across the American farm belt. They say there will be food shortages, a spike in food prices and even a halt to ethanol production.
Reuters reports the International Food Policy Research Institute believes the US drought will mean higher food prices around the world. And Director General Shenggen Fan is recommending a halt to ethanol production, which accounts for 40% of the US corn crop, as one way to stop food prices from spiralling out of control.
While the US Agriculture Department is scheduled to deliver it's fall harvest forecast later this week, more than 60% of the continental US is under moderate to exceptional drought conditions, and the corn crop could be the smallest in a decade.
Fan tells Reuters, "Food crop demand for biofuels, particularly in the United States and European Union must be cut substantially, as should mandates for ethanol content in fuel, to help relieve the pressures on both domestic and global food markets."
Fan says poor crops in 2008 led to a global spike in food prices. Fan suggested six steps to rein in prices and head off out-of-control prices caused by this year's drought.
He is also urging countries to avoid export bans, and be prepared to use their stockpiles to address food emergencies, and he says foreign aid needs to continue to to boost food production in developing countries.
Reuters quotes Fan saying, "Poor and vulnerable groups in developing countries are hard hit by high and volatile prices of the agricultural commodities they depend on for their primary daily caloric intake." "As experienced during the 2007-08 global food price crisis, price movements in domestic markets can have significant impacts on global markets, and vice versa."
World food prices fell for the past three months and are 15.4 percent below the record set in February 2011 on a price index calculated by the U.N. Food and Agriculture Organization.
Already Canada is predicting a huge impact on consumers. CBC reports economists are predicting that Canadians can expect to pay more for everything from pork to cereal. Scotiabank's Patricia Mohr tells Financial Post since livestock in the US are fed corn, price increases for pork and beef will be the most noticeable on store shelves but she adds that poultry prices could also go up. And since grain crops are hardest hit, that could mean higher prices for pasta and baked goods, especially when you factor in rising prices for corn syrup and fructose, used in a lot of processed foods.
RBC economist Paul Ferley tells the Financial Post he expects food costs will rise 2.5 to 3.5 per cent this year and three-to-four per cent in 2013.
Financial Post says already some companies are raising their prices. Canadian donut king Tim Hortons has announced the price of muffins are already up 5 cents and sandwiches are up a dime.