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Can the Food Crisis Return?

Recession has overshadowed “agflation,” but prices could spike again

Specter of Hunger Any one of a number of factors could spark a return to high food prices
Photo by AFP

The world has seen wild gyrations in food prices over the last year. The price of rice, the staple food for half the world, rose by nearly 90% from the start of 2008 and then fell 17% over the 3 months until mid-October, according to the Commodity Research Bureau Index, a global benchmark for measuring commodity price movement.

Oil prices, on which food costs largely depend, hit a high of $147 per barrel in July and fell to half of that by October.

For Renung, a 49-year-old Central Javanese who peddles a becak (tricycle) in a Jakarta suburb for a living, life has been a roller coaster. Earlier this year, he never knew how much money he earned in a month because whatever he earned in a day was gone first thing the next morning.

“Since the price of kerosene as well as food prices went up, I turned to burning cordwood for fuel,” he says. The money that used to go to kerosene went instead for rice. To give school money to the youngest of his four children, he was borrowing from anyone he could.

“One liter of kerosene, which costs around Rp10,000 ($1), could buy two liters of rice, so I buy rice and we eat that with tempeh or tahu [types of soybean], but no meat,” he says.

Today, because recession has lowered the price of oil and basic commodities, Renung’s hardship has eased somewhat and, elsewhere, the memory of the food riots in 30 countries from Pakistan to Mexico and Cameroon is beginning to fade.

But there are deep concerns that the specter of high food prices could return. The world still faces the possibility of starvation that could be triggered by any one of a number of factors. Moreover, the world’s capacity to feed its poor may be running out at a time when incomes are falling everywhere.

“On nearly every level, we are reaching the end of what may one day be called the ‘golden age’ of food, a brief, near-miraculous period in which the things we ate seemed to grow only more plentiful, more secure, more nutritious, and simply better with each passing year,” Paul Roberts wrote in his sobering and exhaustive study of the world’s food supply system, The End of Food, earlier this year.

Although food prices had been rising steadily for some time, two factors accelerated the process. One was the sharp rise in the oil price, which had a devastating effect on food production. The second began in November 2007 when Tropical Cyclone Sidr not only killed nearly 3,500 people in Bangladesh but also forced the government to import 3.5 million metric tons of rice to make up for a greatly reduced harvest.

That proved the catalyst that triggered a global rice crisis. Such disparate countries as the United States (US), Bangladesh, Cote d’Ivoire, and Philippines experienced rice shortages as rice-exporting countries panicked and shut down supplies. In the early part of 2008, 14 countries—including India, People’s Republic of China, Thailand, and Viet Nam—banned or limited exports. By April 2008, especially after cyclone Nargis devastated Myanmar and further increased demand for rice exports, rice skyrocketed from $300 a metric ton to as much as $1,100. It showed how interlocked the world’s food markets are, and how close they are to capacity.

To complicate matters, huge amounts of corn in the US Midwest breadbasket, which supplies nearly 65% of world corn exports, were diverted to produce biofuels. This raised the price of corn—it remains 21% above its price last year—and had other effects such as driving up cotton prices (because of the diversion of agricultural land to corn).

Roberts and others point out that the world could easily return to these high prices as a result of any number of factors. Crude oil prices could rise again if some serious crisis occurred in the Mideast. Water is becoming critically short as farmers continue to draw down the world’s aquifers. The overuse of antibiotics in animal feed could create a race of superbugs with the potential to wipe out chickens, pigs, or cattle. Man-caused global warming is also changing the land and affecting agricultural fertility, reducing production of wheat, corn, and barley. Adverse weather is another major determinant. For example, Australia, which generally exports a third of the world’s wheat, has been badly hit by drought.

The bottom line is, whatever the causes, global cereal stocks fell to 320 million metric tons by the end of 2007, far below the all-time high, according to Worldwatch Institute. As a result, world prices for basic commodities have risen since 2000 and began to skyrocket from the start of 2006. This shows that while some temporary relief may be seen, the longer-term trend appears to be ominous.

What can be done for Renung and the 900 million poor worldwide for whom food takes up between 40% and 60% of the family budget?

Part of the answer lies in Milton Friedman’s famous dictum that the cure for high prices is higher prices. The vast steppes of Russia, for instance, largely abandoned after the collapse of the Soviet Union, are coming back under cultivation, not as collectives, but as investor-driven industrialized farms. The same is true in Poland, Slovakia, and Ukraine. Yields are still far below western standards—but should improve.

Devoting more land to industrial farming is not the only answer, however. In the race to feed the world’s poor, it is very much up to the developed countries to reduce or eliminate trade barriers. Given the political climate, it is questionable when this will happen though.

What is certain is that the poor suffer disproportionately from trade barriers. The 7-year campaign to pass the Doha Round of agricultural trade liberalization bore no fruit. As a result, subsidies for 20,000 cotton producers in the US mean that millions of African cotton farmers from Benin to Chad have no markets for their output. In another example, sugar producers in Brazil, whose ethanol is far more efficient than corn-based ethanol, have been locked out of American markets.

As the economies of the Organisation for Economic Co-operation and Development stall, sentiment against freeing up trade is likely to harden, rather than soften, if the past is any guide. The US, which has led the crusade for several decades to free up world trade, will from 2009 be dominated by a Democratic Congress, with close ties to labor unions that find free trade antithetical.

Mechanization can also help solve the food problem. Often, this can involve simple machines. For example, a seeder developed by the International Rice Research Institute in the Philippines, consisting of six to eight plastic drums along a central axis and mounted on wheels, can be pulled by hand, dropping already-germinated seeds in fairly precise rows. Trials of the device in Bangladesh pushed up yields on average by 18% and increased returns by 21% over transplantation by hand. Importantly, it takes only 2 person-days to plant a crop, compared to 50 when farmers, wives, and children plant seedlings by hand.

Other simple devices can drive up yields as well, but the challenge lies in getting them into the hands of poor farmers.

Consider how technology changed farming in the US between 1950 and 2000:

• The average amount of milk produced per cow increased from 2,410.4 kg to 8,255.8 kg per year.
• The average yield of corn rose from 2,457 kg to 9,639 kg per hectare.
• Each farmer in 2000 produced on average 12 times the farm output per hour as a farmer did in 1950.
• Between 1948 and 2004, agricultural commodity prices rose at less than half the rate of prices in the wider economy.

The fact remains, however, that with the increases in the world’s population, farmers cannot by themselves produce enough food to feed everyone, despite technology and other advances.

As Joachim von Braun, director general of the International Food Policy Research Institute, noted in May: “This global food crisis is a complex problem that cannot be solved with simplistic approaches. More effective and coherent action is needed to help the most vulnerable populations cope with drastic hikes in food bills and to assist developing countries with strategies to increase agricultural productivity.” •