The rise of the middle classes in emerging markets, coupled with a soaring world population, underpin an increase in the price of basics such as wheat, corn and sugar.
But the situation is going to be made much worse by the scarcity of water – the most important commodity there is.
“Water remains a more problematic commodity than food and fuel: though cheap in its natural state, it is expensive to process and expensive to transport, especially in the quantities necessary for agriculture,” according to a report from a Washington-based think tank released last month.
“Past water shortages have been temporary or small-scaled; future groundwater depletion will be massive and effectively permanent.”
The Centre for Strategic and International Studies (CSIS) study looked at water as a strategic resource in the Middle East – the most water-scarce region on Earth.
It argued that the real wild card for political and social unrest in the region is not war, terrorism, or revolution – it is water.
“Current patterns of water use accurately reflect the fact that water is free or nearly so, and its supplies are unlimited,” CSIS says.
“Without some sort of water tariff that at least covers the economic cost of producing water – and more ideally covers the social cost of using water – it is hard to imagine that patterns of use will change much.”
The “green revolution” of the 1980s and 1990s made it possible for nations in the region to sustain agriculture and feed its growing population.
However, governments have been putting all their efforts into maintaining supply rather than reducing demand.
“The Middle East’s green revolution has created a situation in which agriculture now accounts for between 65pc and 90pc of national water consumption across the region,” CSIS said. “But much of the water that agriculture uses comes from underground aquifers that cannot be replenished.”
Water is being taken from underground aquifers more quickly than they can recharge. This means the water supply is shrinking – and in some cases becomes too salty to use for either agriculture or drinking.
Quite simply, demand has to be curbed by increasing the price but rising prices can spark the type of social unrest we have seen over the past few weeks.
Yemen has the second-fastest population growth of any country on Earth. It also has very little water. In fact, the country’s capital Sana’a is expected to have exhausted its underground aquifers within just six years.
Four times as much water is taken out of its river basin as enters it through precipitation each year, so Sana’a is expected to be the world’s first capital city to completely run out of water.
Along with reducing demand, desalination will be the key to solving the region’s problems – but at a very large cost. It is an extremely energy intensive process – one which a country like Yemen may be unable to afford.
“Most of Yemen’s population lives at elevations of more than a mile above sea level, making pumping desalinated drinking water prohibitively expensive,” CSIS said. “Even without pumping costs, desalination would be a heavy burden on a country with a per capita income of less than $900 a year, and with rapidly vanishing oil resources.”
The report concludes that nuclear power generation, which gives off a significant amount of heat, could provide the solution.
Nuclear desalination is not a new idea. A reactor at Aktau in Kazakhstan on the shore of the Caspian Sea successfully produced up to 135 megawatts of electricity and 80,000 cubic metres of drinking water a day between 1972 and 1999, when it was closed at the end of the reactor’s life. Water has also been desalinated using nuclear reactors in India and Japan.
But with new nuclear plants costing in excess of £1.5bn, counties like Yemen just need to find a way to afford them.
GW The oil price is teetering on the brink of $100 once again, having closed up at $99.47 in London on Friday. Analysts said it is rising on increasing tensions in Egypt amid worries about disrupted supply through the Suez Canal. The gap between Brent crude in the UK and West Texas Intermediary in the US is widening to more than $10, with European prices growing at a faster rate. The US market is more isolated, so London prices provide a better measure of international demand.
RM THE price of tin hit a fresh record high in London on Friday, amid fears about lower production in Indonesia.
Three month future contracts pushed over $30,000 per tonne for the first time, with the price already up more than 10pc since the beginning of this year.
Indonesia is the world’s top exporter of tin, making a third of the world’s supply.
However, it may restrict its exports to a maximum of 100,000 tonnes this year if rising prices lead to shortages.
Supply in Indonesia has been lower since heavy rain hit production at tin mines and there has also been a crackdown on illegal mining.
Like Australia’s coal mines affected by the recent floods, heavy rains have centred on the main tin producing area of Bangka island.
The weather is now getting better, but figures for exports this month are likely to show that they have been around a third lower than for December.
Experts expect demand for tin to outstrip supply by about 20,000 tonnes next year. Last year prices rose by about 60pc because the shortfall was 22,000 tonnes.
Metals across the board have also been supported by strong markets in Asia, indicating industrial demand will continue apace.