sorry about resurrecting such an old post but....
http://www.economist.com/opinion/displaystory.cfm?story_id=10252015
Economist.com
Food prices
The end of cheap food
Dec 6th 2007
>From The Economist print edition
Rising food prices are a threat to many; they also present the world
with an enormous opportunity
FOR as long as most people can remember, food has been getting cheaper
and farming has been in decline. In 1974-2005 food prices on world
markets fell by three-quarters in real terms. Food today is so cheap
that the West is battling gluttony even as it scrapes piles of
half-eaten leftovers into the bin.
That is why this year's price rise has been so extraordinary. Since
the spring, wheat prices have doubled and almost every crop under the
sunmaize, milk, oilseeds, you name itis at or near a peak in nominal
terms. The Economist's food-price index is higher today than at any
time since it was created in 1845 (see chart). Even in real terms,
prices have jumped by 75% since 2005. No doubt farmers will meet
higher prices with investment and more production, but dearer food is
likely to persist for years (see article). That is because "agflation"
is underpinned by long-running changes in diet that accompany the
growing wealth of emerging economiesthe Chinese consumer who ate 20kg
(44lb) of meat in 1985 will scoff over 50kg of the stuff this year.
That in turn pushes up demand for grain: it takes 8kg of grain to
produce one of beef.
But the rise in prices is also the self-inflicted result of America's
reckless ethanol subsidies. This year biofuels will take a third of
America's (record) maize harvest. That affects food markets directly:
fill up an SUV's fuel tank with ethanol and you have used enough maize
to feed a person for a year. And it affects them indirectly, as
farmers switch to maize from other crops. The 30m tonnes of extra
maize going to ethanol this year amounts to half the fall in the
world's overall grain stocks.
Dearer food has the capacity to do enormous good and enormous harm. It
will hurt urban consumers, especially in poor countries, by increasing
the price of what is already the most expensive item in their
household budgets. It will benefit farmers and agricultural
communities by increasing the rewards of their labour; in many poor
rural places it will boost the most important source of jobs and
economic growth.
Although the cost of food is determined by fundamental patterns of
demand and supply, the balance between good and ill also depends in
part on governments. If politicians do nothing, or the wrong things,
the world faces more misery, especially among the urban poor. If they
get policy right, they can help increase the wealth of the poorest
nations, aid the rural poor, rescue farming from subsidies and
neglectand minimise the harm to the slum-dwellers and landless
labourers. So far, the auguries look gloomy.
In the trough
That, at least, is the lesson of half a century of food policy.
Whatever the supposed threatthe lack of food security, rural poverty,
environmental stewardshipthe world seems to have only one solution:
government intervention. Most of the subsidies and trade barriers have
come at a huge cost. The trillions of dollars spent supporting farmers
in rich countries have led to higher taxes, worse food, intensively
farmed monocultures, overproduction and world prices that wreck the
lives of poor farmers in the emerging markets. And for what? Despite
the help, plenty of Western farmers have been beset by poverty.
Increasing productivity means you need fewer farmers, which steadily
drives the least efficient off the land. Even a vast subsidy cannot
reverse that.
With agflation, policy has reached a new level of self-parody. Take
America's supposedly verdant ethanol subsidies. It is not just that
they are supporting a relatively dirty version of ethanol (far better
to import Brazil's sugar-based liquor); they are also offsetting older
grain subsidies that lowered prices by encouraging overproduction.
Intervention multiplies like lies. Now countries such as Russia and
Venezuela have imposed price controlsan aid to consumersto offset
America's aid to ethanol producers. Meanwhile, high grain prices are
persuading people to clear forests to plant more maize.
Dearer food is a chance to break this dizzying cycle. Higher market
prices make it possible to reduce subsidies without hurting incomes. A
farm bill is now going through America's Congress. The European Union
has promised a root-and-branch review (not yet reform) of its
farm-support scheme. The reforms of the past few decades have, in
fact, grappled with the rich world's farm programmesbut only timidly.
Now comes the chance for politicians to show that they are serious
when they say they want to put agriculture right.
Cutting rich-world subsidies and trade barriers would help taxpayers;
it could revive the stalled Doha round of world trade talks, boosting
the world economy; and, most important, it would directly help many of
the world's poor. In terms of economic policy, it is hard to think of
a greater good.
Where government help is really needed
Three-quarters of the world's poor live in rural areas. The depressed
world prices created by farm policies over the past few decades have
had a devastating effect. There has been a long-term fall in
investment in farming and the things that sustain it, such as
irrigation. The share of public spending going to agriculture in
developing countries has fallen by half since 1980. Poor countries
that used to export food now import it.
Reducing subsidies in the West would help reverse this. The World Bank
reckons that if you free up agricultural trade, the prices of things
poor countries specialise in (like cotton) would rise and developing
countries would capture the gains by increasing exports. And because
farming accounts for two-thirds of jobs in the poorest countries, it
is the most important contributor to the early stages of economic
growth. According to the World Bank, the really poor get three times
as much extra income from an increase in farm productivity as from the
same gain in industry or services. In the long term, thriving farms
and open markets provide a secure food supply.
However, there is an obvious catchand one that justifies government
help. High prices have a mixed impact on poverty: they hurt anyone who
loses more from dear food than he gains from a higher income. And that
means over a billion urban consumers (and some landless labourers),
many of whom are politically influential in poor countries. Given the
speed of this year's food-price rises, governments in emerging markets
have no alternative but to try to soften the blow.
Where they can, these governments should subsidise the incomes of the
poor, rather than food itself, because that minimises price
distortions. Where food subsidies are unavoidable, they should be
temporary and targeted on the poor. So far, most government
interventions in the poor world have failed these tests: politicians
who seem to think cheap food part of the natural order of things have
slapped on price controls and export restraints, which hurt farmers
and will almost certainly fail.
Over the past few years, a sense has grown that the rich are hogging
the world's wealth. In poor countries, widening income inequality
takes the form of a gap between city and country: incomes have been
rising faster for urban dwellers than for rural ones. If handled
properly, dearer food is a once-in-a-generation chance to narrow
income disparities and to wean rich farmers from subsidies and help
poor ones. The ultimate reward, though, is not merely theirs: it is to
make the world richer and fairer.
Copyright © 2007 The Economist Newspaper and The Economist Group. All
rights reserved.
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