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How rising food prices are impacting the world

High grain costs, caused by severe drought, are hitting dinner tables from Guatemala to China. But the world has learned valuable lessons since the food shocks of 2008. Will it be enough to prevent social unrest?

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"They have insurance," he says of crop growers. "The livestock guys – we're the ones that gotta feed these animals."

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Across the American West, ranchers have been thinning their herds for months. The US cattle herd fell below 98 million head this summer, the lowest level since the early 1970s.

While expensive corn has hurt ranchers and poultry farmers, if they can just survive the next six months, beef and poultry prices should rise, easing the imbalance in their bank accounts. For US consumers, though, all price increases are onerous. The one consolation may be that the proportion of household income spent on food has fallen sharply over the past few decades, to below 15 percent.

But in other parts of the world, the fraction is more improper, with the working poor spending at least 50 percent of their income feeding their families.

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Consider Guatemala, where half of the country's 14 million people live below the poverty line and many struggle to put food on their tables. Throughout history, from centuries past when Mayan cultures flourished on the Yucatán Peninsula until today, corn, ground into meal and made into tortillas, has been the staple.

"It's our most important food. You have tortillas with every meal," says María López, who walks a Guatemala City neighborhood daily, selling hot tortillas door to door.

Two years ago, Guatemalans could buy five tortillas for a quetzal (about 13 cents). Today, a quetzal only buys three tortillas, on average, and other food prices have been surging as well. The government estimates that it costs about 85 quetzales ($10.70) a day to feed a family of four, far more than the minimum daily wage of most people here.

And Guatemala and many of its neighbors in Central and South America are linked to US agricultural production and policy more tightly than ever. "These are countries that are net food importers and overwhelmingly dependent on products coming from the United States," says Fernando Soto Baquero, the senior policy officer for the UN Food and Agriculture Organization's Latin America office.

Between 90 and 99 percent of Central American corn imports come from the US. That dependency was cemented by a US-Central America free-trade agreement, commonly known as CAFTA–DR, which the US Congress narrowly passed in 2005. Since then, the value of annual corn exports to the region has doubled, to about $1 billion.

If the drought were the only factor driving prices, Guatemala and similar governments might have been able to blunt the effects. In theory, they could have bought corn to stockpile when supplies were abundant and prices were cheap, and then released some of the reserves this year, in a time of need.

But they haven't been able to do that because prices were inflated even before the drought struck. That's in part because of something else that happened in 2005: the passage of a law requiring ethanol, made from corn and other grains, to be added in ever increasing amounts to commercial gasoline. Under current law, the US wants to inject 36 billion gallons of ethanol into the fuel supply by 2022.

This year, roughly 40 percent of the US corn crop will go toward the production of ethanol, about 15 percent of the global corn supply. A recent study by researchers at Iowa State University found that the expansion of ethanol production accounted for 36 percent of the increase in the price of corn from 2006 to 2009.

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