Food Security as Defined by the World

Food Security as defined by the World Food Summit is "when all people at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life" (1). Food security and preservation is a very contentious issue among many nations. Nations that are particularly interested in food security are emerging nations (2). These nations, known as the BRICS have very large populations and thus must support them with adequate amounts of food. The problem arises out of each nation's capability to do so effectively. Many of the emerging nations have a burgeoning middle class but many are well below the poverty line. As such, they may not have the means to provide for themselves the necessities of life. A subsequent increase in the price of food poses a significant threat to emerging nations who rely especially on imported goods and services (Refer to appendix for price volatility charts). Any kind of attack that reduces supply without a corresponding decrease in demand will create a rising price structure in regards to food and its security. This fact is further compounded by inflation producing measure enacted by many developed nations such as the U.S. To help stabilize its own economy (3). I believe in order to adequately address these issues; emerging nations must first decrease their reliance on foreign supplies.

I believe the most significant risk posed to food security is not that of terrorist attack, but instead that of a fiscal and monetary policy. Our equity and commodity markets are becoming more global. As such, they are becoming more intertwined with the intricacies of market volatility and investor psychology. I believe the recent U.S. downgrade provides a perfect example of how market volatility and investor psychology can have adverse consequences on food security.

As our economies become more global, so too do standards governing global activities. Commodities such as wheat, corn, and oil are no different in this regard. There is little difference now between wheat in America and wheat produced in Europe. The same goes for other commodities produced elsewhere in the world. As such, price volatility in one commodity in America can potentially affect prices in those of other countries. This concept is popularly termed, "systemic risk." Now emerging countries such as the BRIC nations, have a heavy reliance on food and commodities. This is primarily due to there rising middle class and increased standard of living. With such a rapid population growth rate, the demand for food and its subsequent protection is imperative. For one, with ample food supply, the nation can be better supported physically and thus continue its rapid pace of growth. If there is no food, productivity will diminish those decreasing GDP growth of emerging nations. Secondly, food preservation is needed in the event of adverse climate or cyclical weather changes. For example, if a typhoon or tsunami engulfs Hong Kong, it will need sufficient reserves to mitigate the losses incurred by the unforeseen circumstance

As emerging markets population and middle class increases so too will the demand in food or commodities. Without a corresponding increase in productivity in these commodities, prices will subsequently rise. With rising food costs, will come rising storage costs, and costs to insure or preserve any excess commodities. Realizing this concept in a global economy, terrorists would be much more effective in attacking the financial markets that govern the prices of these commodities. This can come in many forms but I believe the most prevalent and effective is that of uncertainty. It is human nature, especially in America, to avoid uncertainty. We appreciate and pay a premium of stock that preform with more certainty than others. Investors believe stocks with a steady divided stream to be less risky and thus less uncertain. For this assurance, people generally pay a premium over what the security is intrinsically valued. The same goes for commodity prices. This comes in the form of derivative contracts however. In simple terms, hedging is a form of insurance. It is a mechanism used to help shield investors and companies from the negative occurrences within the ordinary business environment (4). If properly hedged, when negative events do affect a business or individual, the damages incurred will be significantly less. A common example is that of insurance on an automobile or house. In the event of a catastrophic wreck or fire, and depending on the level of insurance purchased, an individual can recover the value of the lost car of home. In exchange for this reassurance, the individual would be required to pay monthly premiums whether or not the event actually occurred. In essence the individual is hedging him or herself against the likelihood of an event that would negatively impact the value placed on the particular car or home. Similarly, companies also hedge to reduce the impact of environmental factors on their business. For example, the airline industry is notorious for hedging against rising fuel and commodity prices. Hedging is so important within this industry that often, the company that can hedge more efficiently is frequently the most profitable company. Usually, when hedging, the instruments used have negative correlations. Correlation coefficients are used to determine the movements of two instruments when one instrument remains constant