FROM tortilla riots in Mexico, the pasta strikes in Italy and tomato boycotts in Argentina to government restrictions on food exports in Russia, the food crisis is firmly in the spotlight this year. Over the last 12 months the average price of food has risen by 56%, with wheat rising by 92% and rice, the staple of half the world, by 96%. According to the FAO, lower income, food importing countries will spend $28bn on cereal imports in 2008, double of the amount spent in 2002. As state finances come under increasing pressure, some countries already under stress include Afghanistan, El Salvador, Cameroon and our home country where price of rice has risen 25% to 30% in the last four months.
Overall, food price surge of this proportion, not experienced in the world for the past 30 years, has catastrophically succeeded in pushing nearly a 100 million people worldwide into an abject state of hunger and malnutrition. What are the reasons behind this denouement? What are the extenuating and attenuating factors in this debate? More importantly perhaps, what long term structural changes in food production will this entail?
Perhaps the simplest factor is the rise in demand for food itself particularly in China and India. These are two nations with near double digit economic growth rates over the past decade, with a voracious appetite for foreign direct investment (FDI) and natural commodities which now sport a similar hunger for foodgrains. Increasing urbanization and the changing diet habits of the burgeoning middle class populations in these countries are largely responsible for this heightened demand. China's urban population - which is growing by 15 million to 20 million people a year - consumes almost three times more meat than the rural population. Moreover as the FAO states, the per capita meat consumption for the average Chinese person has increased from 20 kg in 1980 to 50 kg in 2007 per annum. More demand for meat and eggs implies an increased need for feed to rear the livestock with a commensurate rippling effect in those markets as well.
The position of biofuels as a necessary perpetrator in this escapade is a contentious issue. Biofuel, generally cheaper and greener than conventional hydrocarbons, uses the energy contained in organic matter -- crops like sugarcane and corn -- to produce ethanol, an alternative to fossil-based fuels like petrol. The most direct effect is the diversion of land from corn, sugarcane and other crops to biofuels instead of food and seed. Cultivated in the US, the EU and Brazil principally, the production of biofuels has become increasingly popular amongst farmers as the prices of agricultural produce have declined over the past decades. As a result, biofuels that feed cars are now strong competition for crops that feed humans.
Although governments remain vehement in their support for biofuel production, many research reports have documented the emphatic impact of these actions. According to the IFPRI, at least 30% of the price increase of cereals in 2006-2007 was attributable to the diversion of land resources to production of biofuels. Fueling the debate further are statistics from the FAO that about $11bn-$12bn a year is spent in providing subsidies and protective tariff policies for those involved in production of biofuel. In the U.S alone, 50 cents a gallon is paid out for each of its 27 billion litres of ethanol produced to heavily sustain its corn-for-ethanol industry. Several humanitarian organisations are imploring governments to cease spending on biofuels at the expense of pushing more people into desperate hunger. Not the least of villains, the omnipotent oil and the stupendous escalation in its price has also meant that more consumers demand biofuels for running cars and other utilities at home.
The concatenated effect of oil price escalation is all-encompassing. As global prices of corn and rice have risen by 31% and 74% respectively from March 2007 to March 2008, oil prices have risen by over 100% in the same period. Direct effects of increased energy prices abound in lessening ability to irrigate crops, in heightening costs of freight and transportation and in unleashing a vicious cost push spiral. In Kenya, for example, farmers have consistently been forced to plan 1/3 less crops in their lands every year because they simply cannot afford the fertilisers anymore.
Some commodity analysts in part blame the US and Europe's slightly skewed view on agricultural policies over the past few decades for the current price increases. They say the heavy subsidies placed on agricultural produce by the American and European governments in recent times have made investment in agriculture unprofitable for many other countries because they have found it hard to compete. As a result, low investment in this far ignored sector is coming back to haunt European and US consumers in the form of higher food prices as global supplies of agricultural produce are outstripped by demand.
Further in this enumeration, lies a very basic human sentiment that surfaces amidst panic and contagion. Once prices rise, people start hoarding, speculators buy up supplies and food producing countries impose export controls to try and preserve food for their own people - as has been the case with Russia. This then means less is available to be exported to countries which rely on food imports.
Whilst the pecking order of these factors and their respective roles in actuating this food price spiral is highly debatable, the realisation that this predicament is here to stay is no more a bone of contention. Reiterated by none other that the World Bank President himself Robert Zoellick , the availability of cheap food is now - well, no longer available. This is because, despite the presence of some temporal factors in this crisis, the main conspirators are long term trends pointing heavily to structural changes in the world commodity markets.
The FAO estimates that those structural new trends will help to push the cost of agricultural commodities in the next decade between 20 and 50 per cent above their last 10-year average. The theory of perfect competition stipulates that rising prices will attract more farmers causing production to rise and price to level out in the long run. This was the pattern with the price spikes of the past decades - however, this time period is vitally different in that there have been several years of falling cereal stocks, and biofuel demand was not such a large factor in the late 1990s. Nor was the world faced with such monumentally high petroleum prices then.
Is there a silver lining somewhere? Well, for one, the world population has been somewhat woken up to needs of proper utilisation of food. Will production truly increase and prices level out - will the world governments slowly creep towards genetically modified crops with hesitation, suspicion, disdain and fear alike?
The fate of the biofuels debate is equally uncertain. For now, governments and international agencies must act to improve access to food for vulnerable people through expanding aid, boosting smallholder production and minimizing export restriction and import tariffs. These are long haul strategies that require, no less than, global co-operation.
Global agricultural prices: Is food the next strategic asset?
Sabah Saleheen Azim | Published: July 28, 2008 00:00:00 | Updated: February 01, 2018 00:00:00
Share if you like