The end of cheap food
Dec 6th 2007 >From The Economist print edition >http://www.economist.com/opinion/displaystory.cfm?story_id=10252015 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 sun—maize, milk, oilseeds, you name it—is 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 economies—the 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 neglect—and 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 threat—the lack of food security, rural poverty, environmental stewardship—the 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 controls—an aid to consumers—to 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 programmes—but 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 catch—and 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. An expensive dinner Nov 3rd 2007 From Economist.com http://www.economist.com/world/international/displaystory.cfm?story_id=10085859 Alarm is growing about rising food prices “THE world’s most vulnerable who spend 60% of their income on food have been priced out of the food market,” is the alarming warning from Josette Sheeran, head of the United Nations’ World Food Programme (WFP). As the price of wheat, maize, corn and other commodities that make up the world’s basic foodstuffs is soaring the poorest people in the poorest countries are the hardest hit. And as prices shoot up helping them is getting tougher too. The WFP’s food costs increased by more than 50% over the past five years. Ms Sheeran predicts that they will increase by another 35% in the next couple of years too. For many years the least developed nations have worried about food security, especially countries at war and those battling droughts and other climatic hardships. Meanwhile the world’s richest nations have produced more than enough for their needs and spent more time and effort worrying about the problems related to an abundance of food. These range from the health risks associated with ballooning rates of obesity to subsidies for uncompetitive farmers, particularly from the European Union. Despite efforts to tackle spending on farm subsidies, over 40% of the entire EU budget still goes towards supporting agriculture. “Until two years ago we had too much food, but it was badly and unequally distributed,” says Abdolreza Abbassian, secretary of the intergovernmental group for grains trade at the Food and Agriculture Organisation (FAO), a UN agency. Today about 850m people, mostly women and children, remain chronically hungry while 1.1 billion are obese or overweight. Food is scarcer now thanks to market liberalisation, which helped to cut excess production and lower stocks. At the same time demand for grains and other food commodities has shot up in China, India and other countries with rapidly growing economies. The biofuel industry is gobbling up an increasing share of the corn and sugar crops. And this year floods and droughts around the world destroyed much of the harvest in countries such as Britain, which had one of the wettest years in recent history, and Australia, which had one of the driest. Concern about the cost of food is even spreading beyond the world’s poor countries. Last month Italians took to the street in Rome and Milan to protest against an increase in pasta prices. They are eating less too: Italians’ pasta and bread consumption dropped 7.4% and milk consumption fell by 2.6% in the first eight months of the year according to Coldiretti, a farmers’ association. Efforts to find solutions have been complicated by political manipulation. This month the Russian government introduced price controls in the run-up to parliamentary elections in December. This will temporarily help the country’s poor but leave them more exposed to the impact of price increases after controls are lifted. Jacques Diouf, head of the FAO, predicts that more countries will introduce food-price controls while others will scrap import tariffs on food or increase subsidies for food production. And efforts to alleviate one problem, finding an alternative to oil, has brought strong condemnation from a proponent of another, feeding the world’s starving poor. Jean Ziegler, the UN’s independent expert on the right to food, calls the growing use of crops to replace petrol as a crime against humanity and wants a five-year moratorium on biofuel production. Periods of high prices followed by times of low prices are common in agricultural markets. What makes the current cycle different from previous periods of high prices is the rise has hit nearly all food commodities. In the past farmers producing a plentiful crop attracting low prices would switch to one in shorter supply that would earn them more. And stocks are so tight at the moment that there is not much of a buffer if bad weather next year effects crops again, according to the FAO’s Mr Abassian. Prices will probably remain high for the next year or two while the world is adapting to food scarcity. What happens next will reveal the resilience of the world’s food-supply system, predicts Ms Sheeran. Her programme, she says, is battling with a host of adverse circumstances. In addition to higher prices for food the WFP has to cope with climatic change, a rapidly increasing world population and the decline in the rich world’s aid budgets. Ms Sheeran refers to this as the post food-surplus era. The fat probably won’t get any thinner but the effects on the world’s poorest and hungriest could be devastating. World food stocks dwindling rapidly, UN warns By Elisabeth Rosenthal Published: December 17, 2007 http://www.iht.com/articles/2007/12/17/europe/food.php ROME: In an "unforeseen and unprecedented" shift, the world food supply is dwindling rapidly and food prices are soaring to historic levels, the top food and agriculture official of the United Nations warned Monday. The changes created "a very serious risk that fewer people will be able to get food," particularly in the developing world, said Jacques Diouf, head of the UN Food and Agriculture Organization. The agency's food price index rose by more than 40 percent this year, compared with 9 percent the year before - a rate that was already unacceptable, he said. New figures show that the total cost of foodstuffs imported by the neediest countries rose 25 percent, to $107 million, in the last year. At the same time, reserves of cereals are severely depleted, FAO records show. World wheat stores declined 11 percent this year, to the lowest level since 1980. That corresponds to 12 weeks of the world's total consumption - much less than the average of 18 weeks consumption in storage during the period 2000-2005. There are only 8 weeks of corn left, down from 11 weeks in the earlier period. Prices of wheat and oilseeds are at record highs, Diouf said Monday. Wheat prices have risen by $130 per ton, or 52 percent, since a year ago. U.S. wheat futures broke $10 a bushel for the first time Monday, the agricultural equivalent of $100 a barrel oil. (Page 16) Diouf blamed a confluence of recent supply and demand factors for the crisis, and he predicted that those factors were here to stay. On the supply side, these include the early effects of global warming, which has decreased crop yields in some crucial places, and a shift away from farming for human consumption toward crops for biofuels and cattle feed. Demand for grain is increasing with the world population, and more is diverted to feed cattle as the population of upwardly mobile meat-eaters grows. "We're concerned that we are facing the perfect storm for the world's hungry," said Josette Sheeran, executive director of the World Food Program, in a telephone interview. She said that her agency's food procurement costs had gone up 50 percent in the past 5 years and that some poor people are being "priced out of the food market." To make matters worse, high oil prices have doubled shipping costs in the past year, putting enormous stress on poor nations that need to import food as well as the humanitarian agencies that provide it. "You can debate why this is all happening, but what's most important to us is that it's a long-term trend, reversing decades of decreasing food prices," Sheeran said. Climate specialists say that the vulnerability will only increase as further effects of climate change are felt. "If there's a significant change in climate in one of our high production areas, if there is a disease that effects a major crop, we are in a very risky situation," said Mark Howden of the Commonwealth Scientific and Industrial Research Organization in Canberra. Already "unusual weather events," linked to climate change - such as droughts, floods and storms - have decreased production in important exporting countries like Australia and Ukraine, Diouf said. In Southern Australia, a significant reduction in rainfall in the past few years led some farmers to sell their land and move to Tasmania, where water is more reliable, said Howden, one of the authors of a recent series of papers in the Procedings of the National Academy of Sciences on climate change and the world food supply. "In the U.S., Australia, and Europe, there's a very substantial capacity to adapt to the effects on food - with money, technology, research and development," Howden said. "In the developing world, there isn't." Sheeran said, that on a recent trip to Mali, she was told that food stocks were at an all time low. The World Food Program feeds millions of children in schools and people with HIV/AIDS. Poor nutrition in these groups increased the risk serious disease and death. Diouf suggested that all countries and international agencies would have to "revisit" agricultural and aid policies they had adopted "in a different economic environment." For example, with food and oil prices approaching record, it may not make sense to send food aid to poorer countries, but instead to focus on helping farmers grow food locally. FAO plans to start a new initiative that will offer farmers in poor countries vouchers that can be redeemed for seeds and fertilizer, and will try to help them adapt to climate change. The recent scientific papers concluded that farmers could adjust to 1 degree Celsius (1.8 degrees Fahrenheit) to 3 degrees Celsius (5.4 degrees) of warming by switching to more resilient species, changing planting times, or storing water for irrigation, for example. But that after that, "all bets are off," said Francesco Tubiello, of Columbia University Earth Institute. "Many people assume that we will never have a problem with food production on a global scale, but there is a strong potential for negative surprises." In Europe, officials said they were already adjusting policies to the reality of higher prices. The European Union recently suspended a "set-aside" of land for next year - a longstanding program that essentially paid farmers to leave 10 percent of their land untilled as a way to increase farm prices and reduce surpluses. Also, starting in January, import tariffs on all cereal will be eliminated for six months, to make it easier for European countries to buy grain from elsewhere. But that may make it even harder for poor countries to obtain the grain they need. In an effort to promote free markets, the European Union has been in the process of reducing farm subsidies and this has accelerated the process. "It's much easier to do with the new economics," said Michael Mann a spokesman for the EU agriculture commission. "We saw this coming to a certain extent, but we are surprised at how quickly it is happening." But he noted that farm prices the last few decades have been lower than at any time in history, so the change seems extremely dramatic. Diouf noted that there had been "tension and political unrest related to food markets" in a number of poor countries this year, including Morocco, Senegal and Mauritania. "We need to play a catalytic role to quickly boost crop production in the most affected countries," he said. Part of the current problem is an outgrowth of prosperity. More people in the world now eat meat, diverting grain from humans to livestock. A more complicated issue is the use of crops to make biofuels, which are often heavily subsidized. A major factor in rising corn prices globally is that many farmers in the United States are now selling their corn to make subsidized ethanol. Mann said the European Union had intentionally set low targets for biofuel use - 10 per cent by 2020 - to limit food price rises and that it plans to import some biofuel. "We don't want all our farmers switching from food to biofuel," he said. ____________________________________________________________________________________ Looking for last minute shopping deals? Find them fast with Yahoo! Search. http://tools.search.yahoo.com/newsearch/category.php?category=shopping [Non-text portions of this message have been removed]
