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US drought already rippling out into the world

Scuffles in Jakarta markets between tofu producers and soybean traders may be a taste of things to come.

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The government has already promised to scrap the 5 percent duty on Aug. 1. But you don't have to be a math genius to realize that a 5 percent cut in costs will have little impact on prices that have risen by a third. Indonesia's import duty is to protect local producers in a quest for domestic food security. But in practice, such measures amount to a tax on the country's landless urban factory workers and others among the poorest and continues, despite the government having removed long-standing soybean subsidies at the urging of international organizations like the World Bank and International Monetary Fund four years ago.

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Staff writer

Dan Murphy is a staff writer for the Monitor's international desk, focused on the Middle East. Murphy, who has reported from Iraq, Afghanistan, Egypt, and more than a dozen other countries, writes and edits Backchannels. The focus? War and international relations, leaning toward things Middle East.

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Food prices first and foremost affect nutrition, but they can also have profound impacts on the overall health of an economy and society as children are pulled out of school to save money and consumer spending declines as a greater percentage of household incomes are spent on food. And market costs are about more than supply and demand. Speculation and hoarding by traders at times of grain scarcity is almost as old as human history, and will certainly amplify price increases across the globe as this hungry year moves forward.

IN PICTURES: Drought in the USA

Earlier this week, researchers at New England Complex Systems Institute, published a paper predicting a surge in prices as speculators pile into grain markets and an impact on the stability of a number of countries. 

During the last six years, high and fluctuating food prices have lead to widespread hunger and social unrest. While the spring of 2012 had a relative dip in the food prices, a massive drought in the American midwest in June and July threatens to trigger another crisis... We find that the drought may trigger the expected third food price bubble to occur sooner, before new limits to speculation are scheduled to take effect. Reducing the amount of corn that is being converted to ethanol may address the immediate crisis. Longer term, market stabilization requires limiting financial speculation... Recent food price peaks in 2007-8 and 2010-1 have resulted in food riots and are implicated in triggering widespread revolutions known as the Arab Spring

Is revolutionary upheaval in the offing for the year ahead? Who knows. But it's a safe bet that government planners across the globe are bracing for the worst and working furiously to find solutions.

Follow Dan Murphy on Twitter.

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