World food prices soar as a wealthier Asia consumes more

  By Russell Blinch and Brian Love

  Reuters

  Monday, March 31, 2008

  WASHINGTON: Food prices are soaring; a wealthier Asia is demanding better food and farmers cannot keep up. In short, the world faces a food crisis and in some places it is already boiling over.

Around the globe, people are protesting and governments are responding with often counterproductive controls on prices and exports – a new politics of scarcity in which ensuring food supplies is becoming a major challenge for the 21st century.

Damaged by severe weather in producing countries and plundered by a boom in demand from fast-developing nations, global wheat stocks are at 30-year lows. Grain prices have been on the rise for five years, ending decades of inexpensive food.

Drought, a declining dollar, a shift of investment money into commodities and use of farm land to grow biofuel crops have all contributed to food woes. But population growth and the growing wealth of China and other emerging countries are likely to be more enduring factors.  World population is set to hit 9 billion by 2050, and most of the extra 2.5 billion people will live in the developing world. It is in these countries that the population is demanding dairy and meat, which require more land to produce.

“This is an additional setback for the world economy, at a time when we are already going through major turbulence, but the biggest drama is the  impact of higher food prices on the poor,” Angel Gurría, head of the  Organization for Economic Cooperation and Development, said.

In Gurría’s native Mexico, tens of thousands took to the streets last year over the cost of tortillas, a national staple whose price rocketed in tandem with the price of corn.

Global food prices, based on United Nations records, rose 35 percent in the year to the end of January, markedly accelerating an upturn that began, gently at first, in 2002. Since then, prices have risen65percent.

In 2007 alone, according to the UN Food and Agriculture Organization’s world food index, dairy prices rose nearly 80 percent and grain 42percent.”The recent rise in global food commodity prices is more than just a short-term blipping,” the British research group Chatham House said in January. “Society will have to decide the value to be placed on food,” it added, and how “market forces can be reconciled with domestic policy objectives.” Many countries are already facing these choices.

After long opposition, Mexico’s government is considering lifting a ban on genetically modified crops to allow its farmers to compete with the United States, where high-yield, genetically modified corn is the norm.

The European Union and parts of Africa have similar bans that could also be reconsidered.

A number of governments, including Egypt, Argentina, Kazakhstan and China, have imposed restrictions to limit grain exports and keep more of their food at home.

This knee-jerk response to food emergencies can result in farmers producing less food, and it threatens to undermine years of effort to open up international trade.

“If one country after the other adopts a ‘starve-your-neighbor’ policy, then eventually you trade smaller shares of total world production of agricultural products, and that in turn makes the prices more volatile,” said Joachim von Braun, director general of the International Food Policy Research Institute in Washington.

In Argentina, a government tax on grain led to a strike by farmers that disrupted grain exports. Vietnam and India, both major rice exporters, announced further curbs on overseas sales Friday, sending rice higher on U.S. futures markets. Other food commodities retreated from record highs in recent days, but analysts attributed that less to fundamentals and more to profit-taking by investors.

In the next decade, the price of corn could rise 27 percent, oilseeds like soybeans by 23 percent and rice by 9 percent, according to tentative UN and OECD forecasts in February.

Waves of discontent are already starting to be felt. Violent protests hit Cameroon and Burkina Faso in February. Protesters rallied in Indonesia recently and media reported deaths by starvation. In the Philippines, fast-food chains were urged to cut rice portions to counter a surge in prices.

Trade Minister Kamal Nath of India said Monday that the government was looking to cut duties on food items to rein in rising prices.

“We are looking to cutting our duties on many products on the food front,” he said, ahead of a cabinet committee meeting to consider ways to contain prices. Earlier this month, the government cut the import duty on crude palm oil to 20 percent from 45 percent, and on refined palm oil to 27.5 percent from 52.5 percent.

Last year, the central bank of Australia – where minds were focused by a two-year drought – asked whether the surge in commodity prices could be one of the few really big ones in world history, like those of the mid-1930s or the 1970s.

Real commodity prices remained flat or even fell during the rapid industrialization of the United States and Germany in the early 20th century. But the industrialization of China, with 1.3 billion people, is on a totally different scale, the Reserve Bank of Australia noted.

“China’s population is proportionately much larger than the countries that industrialized in earlier periods and is almost double that of the current G-7 nations combined,” the central bank said. The emergence of China’s middle class is adding hugely to demand not just for basic commodities like corn, soybeans and wheat, but also for meat, milk and other high-protein foods.

The Chinese, whose rise began in earnest in 2001, ate just 20 kilograms, or 44 pounds, of meat per capita in 1985. They now eat 50 kilograms a year.

Each pound of beef takes about seven pounds of grain to produce, which means land that could be used to grow food for humans is being diverted to growing animal feed.

As the West seeks to tackle the risk of global warming, a drive toward greener fuels is compounding global food problems. It is estimated that one in four bushels of corn from the U.S. corn crop this year will be diverted to make fuel ethanol.

“Turning food into fuel for cars is a major mistake on many fronts,” said Janet Larsen, director of research at the Earth Policy Institute, an environmental group based in Washington. “One, we’re already seeing higher food prices in the American supermarket. Two, perhaps more serious from a global perspective, we’re seeing higher food prices in developing countries where it’s escalated as far as people rioting in the streets.”

Similarly, prices for palm oil are at records because of demand to use it for biofuel, causing pain for low-income families in Indonesia and Malaysia, where it is a staple.But despite the rising criticism of biofuels, the U.S. corn-fed ethanol industry enjoys wide political support because it helps farmers, who suffered years of low prices, and that support is likely to continue.

John Bruton, the European Union’s ambassador to the United States, predicts that the world faces 10 to 15 years of steep rises in food costs. And it is the poor in Africa and, increasingly, Southeast Asia, who will be most vulnerable.

The director of the UN World Food Program, Josette Sheeran, is on a global tour in search of donations to fill a $500 million funding gap caused by the rising prices. The largest U.S. aid program, Food for Peace, has seen its commodity prices jump 40 percent and may have to curtail donations.

But aid and many policy options available to governments for helping the hungry distort markets and cause pain elsewhere in their economies, according to proponents of free markets.

“I was involved in a government that introduced food subsidies in Ireland and we had the devil’s own job to get rid of them,” said Bruton, who was prime minister of Ireland from 1994 to 1997.

Others trust that better fertilizers and higher-yielding crops – some of them genetically modified – will keep production in line with demand.

Bruce Babcock, an economist at Iowa State University, said the rising markets were a signal to farmers that they needed to raise production.

“It’s actually the greatest time in the world to be a farmer around the world,” Babcock said. “We are going to see fairly substantial increases in production because farmers have never had such a large incentive to increase production.”

But others note that expensive seeds and fertilizers are out of reach of farmers in poor countries.

Around the beginning of the 19th century, the British political economist Thomas Malthus said population had the potential to grow much faster than food supply, a prediction that efficient farming consistently proved wrong. Now, at the beginning of the 21st century, some are revisiting his predictions.

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