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Food prices are headed back to the historic peaks they hit in 2007-2008. Last time I wrote about food, that was the headline.

A little more than two weeks later that observation seems old hat. Events in Tunisia and Egypt -- and elsewhere in the world -- have already eclipsed that column.

This round of the food crisis -- which started off as pretty much a replay of the 2007-2008 crisis -- has moved to a new level of seriousness. Governments have been rocked by protests that are about a whole lot more than the price of bread. But soaring food prices have acted as a trigger to turn long-term dissatisfaction into massive street action. The math isn't hard to understand: In Egypt, 40% of the population is living on $2 as day or less. A 10% to 20% spike in the cost of bread is a huge problem.

Government hoarding, which in the last crisis pushed food prices to levels unjustified by actual supply and demand, is going to be much worse this time, I believe. It will be greater in volume, more extended in duration and will include more commodities. In fact, I think the food crisis will be the catalyst for a huge shift in global economic policies in the developing world that will result in a pullback from efforts to reduce market subsidies for everything from rice to cooking oil to gasoline and kerosene.

The worse the food crisis gets, the less willing governments -- from Beijing to Jakarta to Tehran -- will be to pursue market reforms.

So how much worse will the food crisis be this time?

Take a look at Algeria. Last time I wrote about this topic -- on Jan. 14 -- the Algerian government had been besieged by riots over the price of sugar and bread. No surprise that the Algerian government bought 900,000 metric tons of wheat in the early part of January.

That was before the outbreak of the protests in Tunisia and Egypt. On Wednesday, Jan. 26, the Algerian government bought 800,000 additional metric tons of wheat. That brought the total for 2011 -- which is all of four weeks old -- to 1.7 million metric tons. Algeria is one of the world's biggest importers of wheat in normal times. But buying usually comes in at 5.5 million metric tons a year. At the current pace, the government would more than double that in calendar 2011.

A replay of 2007?

Until Tunisia, when protests actually succeeded in ousting a long-term autocratic regime, the current food crisis seemed like it was going to be a near replay of the 2007-2008 crisis. First, bad harvests from Russia, Australia or India start prices climbing. Second, food-producing countries such as Russia, the Ukraine or Vietnam slap on export restrictions to make sure their domestic markets have enough food. Third, food-importing governments make massive purchases to build up stockpiles, just in case, essentially hoarding food.

image: Jim Jubak

Jim Jubak

Last time around prices fell once the weather improved, hoarders started selling stockpiles, and the global economic crisis meant people had less money to spend on food.

This time the weather may yet cooperate -- more on that later -- but we're still in the early stages of hoarding -- when it seems like panicked governments will compete to see who can stockpile the most.

Forget about such "minor" moves as Algeria's purchase of 1.7 million tons of wheat. Bangladesh, one of the world's top three rice importers, on Jan. 27 said it will double its purchases to 1.2 million metric tons from an initial estimate of 600,000 tons. Indonesia has put in a huge order for 800,000 tons of rice, equal to two-thirds of last year's entire total for rice imports.

Top that? Easy. Saudi Arabia, one of the top 10 wheat importers in the world, has announced it will increase wheat imports until it doubles its stockpiles. The goal is to increase wheat holdings to a full year's supply.

Thanks to good rice harvests in Thailand and Vietnam, rice prices, while moving up to $550 a metric ton last week, are still well below the 2008 peak of $1,000 per metric ton.

Consumers of wheat should be so lucky. In Chicago, last week soft wheat rose to a 29-month high. In Paris, European milling wheat climbed to the highest level since March 2008 and is only 10% or so below the all-time peak of September 2007.

Rising commodity prices aren't limited to wheat, rice, corn and soybeans, either. Sugar prices, for instance, are near a 30-year high. The European Union said only two months ago that it would allow export of an additional 350,000 metric tons of sugar. Now it looks like Europe will wind up increasing sugar imports. With global sugar inventories at their lowest level in decades, that shift has put sugar prices on track to set a new high above 35 cents a pound in February.

How did we get back to a global food crunch so quickly? In retrospect, the decline in the price of food commodities caused by the global economic crisis was a brief pause that didn't change the long-term trend toward higher prices.

Supply and demand out of whack

On the demand side, a growing global population with rising incomes causes more people to want to eat higher on the food chain by consuming more wheat in the form of bread and more corn and soybeans in the form of grain-fed beef, pork and chicken.

On the supply side, there is a shortage of farmable land that can be brought into production. Encroachments from urban areas and from industrialization have taken arable land out of production. Environmental pollution, from toxic metals or from polluted water, has also reduced the amount of global farmland. In addition, water shortages (either from actual shortages of water or due to pollution that made available water supplies unusable) reduced yields or made harvests erratic. In some cases, they made farming impossible.

Efforts to bridge that demand/supply gap include increasing yields by applying more fertilizer, improving yields by planting new kinds of seeds, reducing the impact of periodic droughts by developing drought-resistant seeds and increasing the use and efficiency of irrigation.

Think of it as a race between the factors that increase supply and those that increase demand. It's a race in which the outcome is still in doubt.

It's also important to notice that the factors that increase supply in the long term do not generally increase supply in the short term. If there's a drought in Argentina or the Ukraine, creating drought-resistant seeds that might be ready for planting in five or 10 years is irrelevant. If government panic leads to a run on wheat supplies, applying more fertilizer or increasing irrigation doesn't create food supplies in time to address the problem.