[Foodplanning] Feature: Why the Era of Cheap Food is Over

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http://www.csmonitor.com/2007/1231/p13s01-wogi.html

December 31, 2007

Why the era of cheap food is over
      Corn, milk, bread, and other farm products 
hit record high prices in 2006 - and will likely 
keep rising in 2008.

Food prices worldwide hit record highs in 2006, 
and all the signs are that they will go on rising 
this year, and for the foreseeable future. The 
era of cheap food, the experts say, is over and 
we are going to have to get used to it. This is 
easier said than done for millions around the 
world, as evidenced by protests in Mexico over 
the cost of corn tortillas, and in Italy last 
September about the price of (wheat) pasta. Staff 
writer Peter Ford looks at why.

What is behind the increases in food prices?

Certainly not bad harvests. Although a drought 
hit the traditionally bountiful Australian wheat 
harvest this past year, world cereal harvests hit 
2.1 billion metric tons, a record production 
level, according to the UN Food and Agriculture 
Organization (FAO).

Two major trends have been pushing prices up 
faster than they have risen for more than 30 
years. One is that increasingly prosperous 
consumers in India and China are not only eating 
more food but eating more meat. Animals have to 
be fed (grains, usually) before they are 
butchered. The other is that more and more crops 
- from corn to palm nuts - are being used to make 
biofuels instead of feeding people.

At the same time, the world is drawing down its 
stockpiles of cereal and dairy products, which 
makes markets nervous and prices volatile.

The result, says Joachim von Braun, who heads the 
International Food Policy Research Institute 
(IFPRI) in Washington, is that "the world food 
system is in trouble. The situation has not been 
this much of a concern for 15 years."

How big a factor is the biofuels boom?

It is significant enough for the FAO to be 
warning about the dangers of turning too much 
food into fuel, and for the Chinese government, 
for example, to ban the construction of new 
refineries that use corn or other basic foods. In 
fact, earlier this month Beijing announced tax 
breaks and subsidies to encourage the use of 
cellulose, sweet sorghum, and cassava (nonfood 
crops in China) for biofuels.

Some analysts estimate that as much as 30 percent 
of the US grain crop will go toward producing 
ethanol this year, a doubling from 2006. IFPRI 
forecasts that if the world sticks to current 
biofuel expansion plans, the price of corn will 
go up 26 percent by 2020, and the price of 
oilseeds (such as soybean, sunflower, rapeseed) 
by 18 percent. If governments double efforts to 
produce this alternative fuel source, corn prices 
are expected to go up 72 percent and oilseeds by 
44 percent in 12 years' time.

Who gets hit hardest? Does anyone benefit?

As usual, it is the poorest people in the world 
who suffer most, because food takes up a bigger 
share of their daily shopping bill than it does 
for richer people. A family in Bangladesh, for 
example, living on $5 a day, typically spends $3 
of that on food. The 50 percent rise in food 
prices the world has seen in recent years takes a 
$1.50 chunk - nearly 30 percent - out of the 
family budget.

Even farmers are not immune. On the whole, 
small-scale farmers in developing countries buy 
more food than they sell, so they, too, are net 
losers. Relatively few peasants have holdings 
large enough to benefit from price increases.

Big farmers in the rich countries, however, are 
doing well: US corn farmers have seen the price 
their crop fetches jump by 50 percent since 2000. 
Other net food exporters, such as India, 
Australia, and South Africa, will also do well 
out of rising prices. Major dairy producers, such 
as New Zealand, have done well as consumption of 
milk, yogurt, and cheese rises in Asia. As a 
result, while property values in New Zealand are 
generally expected to soften, flat rural land, 
where cows can graze, is expected to continue to 
rise in price, according to a survey by Massey 
University in New Zealand.

Will market forces correct the situation, as 
farmers switch to the high-earning crops?

Not as quickly as you might expect, though the 
European Union, the largest food exporter in the 
world, has suspended a "set-aside" program that 
had paid its farmers to leave 10 percent of their 
land fallow (so as to prevent oversupply).

Cereal prices are considered "inelastic," meaning 
that a 10-percent price increase tends to boost 
supplies by only one or two percentage points. 
While prices are high, they are also very 
volatile at the moment, which scares a lot of 
farmers off making the investments they would 
need to switch crops.

At the same time, the food market overlaps with 
the fuel market. Farmers can now sell their corn, 
their palm nuts, or their sugar to biodiesel 
refineries. So the price of palm oil, for 
example, traditionally the cheapest in Africa, is 
now set not by the cooking oil market, but by the 
fuel market.

It will not help that climate change and the 
accompanying floods and droughts will reduce 
cereal output in more than 40 developing 
countries, mainly in Africa, according to recent 
studies.

Where will food shortages be most acute?

Wherever the underlying trends of rising prices 
and scarcer supplies are compounded by special 
problems. Sometimes they are natural disasters, 
such as the cyclone and flooding that hit 
Bangladesh last November, wiping out many 
people's stocks of food. Sometimes they are 
man-made, as in the Democratic Republic of Congo, 
where continuing civil conflict and mismanagement 
disrupt the market, or in Zimbabwe, where 
inflation of more than 7,000 percent and a 
crumbling economy are threatening people already 
short of food.

"The hot spots of food risks will be where high 
prices combine with shocks from the weather or 
political crises,", says Dr. von Braun. "These 
are recipes for disaster."

What effect will high prices have on hunger-prevention programs?

A big one says the World Food Program (WFP), the 
UN agency in charge of emergency food aid, which 
reported last year that food aid flows had 
reached their lowest levels since 1973.

Food prices "are an incredible concern for us at 
the moment" says WFP spokesman Robin Lodge. "The 
same dollars don't buy the same amount of food as 
they used to," and donations to the agency are 
flat.

The WFP has been making a big effort to buy food 
from countries as near as possible to crisis 
zones, to cut transport costs, and in 2007 it had 
15 million fewer people to feed than in 2006 
because there were fewer major emergencies.

"But we are now about as tight as we can get, so 
unless donations go up there is no doubt about 
it, we will have to reconsider who we are feeding 
and the rations" says Mr. Lodge. "There is no 
other way around it."

Many food aid organizations are trying to buy 
more food locally. The FAO is reportedly working 
on a program to offer poor farmers vouchers for 
seeds and fertilizer to help them adapt to 
changing climate conditions.


Copyright © 2007 The Christian Science Monitor. All rights reserved.

***   NOTICE:  In accordance with Title 17 U.S.C. 
Section 107, this material is distributed, 
without profit, for research and educational 
purposes only.   ***

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